Every investor wishes to have a magical portfolio of stocks with a one-way ticket to success. But this is easier said than done. And when the market is as volatile as it is now, things may take a turn for the worse any moment.
No matter how disciplined and systematic investors are, equity market volatility will always manage to get the better of them. While a few lucky ones rake in the moolah, others fall victim to ad hoc strategies.
One could resort to commonly used techniques to find beaten down stocks that have the potential to recover faster than others. However, even such investment choices bear the risk of disappointment. Particularly, one could be stuck in a value trap if the hidden weaknesses in selected stock are not identified.
So, wouldn't it be a safer strategy to look for stocks that are winners currently and have the potential to gain further?
Here's how to execute it:
One should primarily look for stocks that are witnessing price increase. Actually, stocks seeing price strength recently have a high chance of carrying the momentum forward.
If a stock is continuously moving higher, there must be a good reason for the rise or else it probably would have fallen like the losers. So, looking at stocks that have already won the game and are capable of beating the benchmark that they have set is rational.
However, recent price strength alone cannot create magic. Therefore, you need to set other relevant parameters to create a successful investment strategy.
Here's how you should create the screen to shortlist the current as well as the potential winners.
Screening Parameters: Percentage Change in Price (4 Weeks) greater than zero:
This criterion shows that the stock has moved higher in the last four weeks. Percentage Change Price (12 Weeks) greater than 10:
This indicates that the stock has seen momentum over the last three months. This lowers the risk of choosing stocks that may have drawn attention due to the overwhelming performance of the overall market in a very short period. Zacks Rank 1:
No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today's Zacks #1 Rank stocks here
. Average Broker Rating 1:
This indicates that brokers are also highly hopeful about the stock's future performance. Current Price greater than 5:
The stocks must all be trading at a minimum of $5. Current Price/ 52-Week High-Low Range more than 85%:
This criterion filters stocks that are trading near their respective 52-week highs. It indicates that these are strong enough in terms of price.
Here are five of the 10 stocks that made it through this screen: Ameresco, Inc. AMRC
is an independent provider of comprehensive energy efficiency solutions for facilities throughout North America. The Zacks Rank #1 stock delivered a positive earnings surprise of 242.9% last quarter. Medifast, Inc. MED
is a leading manufacturer and distributor of clinically proven healthy living products and programs. The Zacks Rank #1 stock delivered a positive earnings surprise of 25% last quarter. Harsco Corporation HSC
is a services and engineered products company. The Zacks Rank #1 stock delivered a positive earnings surprise of 33.3% last quarter. ConnectOne Bancorp, Inc. CNOB
is a community-based, full-service commercial bank holding company. The Zacks Rank #1 stock delivered a positive earnings surprise of 27.5% last quarter. Eldorado Resorts, Inc. ERI
is a casino entertainment company.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out. Click here to sign up for a free trial to the Research Wizard today. Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks' portfolios and strategies are available at: https://www.zacks.com/performance .
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Eldorado Resorts, Inc. (ERI): Free Stock Analysis Report ConnectOne Bancorp, Inc. (CNOB): Free Stock Analysis Report MEDIFAST INC (MED): Free Stock Analysis Report Ameresco, Inc. (AMRC): Free Stock Analysis Report Harsco Corporation (HSC): Free Stock Analysis Report To read this article on Zacks.com click here.