An investor always seeks a win-win strategy. However, finding one is easier said than done. Particularly, in the current highly volatile market, it is difficult for even an ardent investor to come up with a foolproof approach.
One could resort to the commonly used techniques to find beaten down stocks that have the potential to recover faster than others. But this bears the risk of disappointment as one could fall into the value trap if the selected stock's hidden weakness is 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 is how one can go about it:
One should primarily look for stocks that have recently been witnessing price increase. Actually, stocks backed by recent price strength have a high chance of carrying the momentum forward.
If a stock has steadily been on an uptrend, there must be a solid reason for it or else it would have crashed. So, looking at such stocks that are capable of beating the benchmark that they have set for themselves seems rational.
However, recent price strength alone cannot create magic, so 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.
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 four of the six stocks that made it through this screen:
Primo Water CorporationPRMW operates as a provider of three- and five-gallon purified bottled water and water dispensers through major retailers nationwide. The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 270%.
Horizon Global Corp.HZN is a designer, manufacturer and distributor of towing, trailering, cargo management and accessory products for original equipment, aftermarket and retail customers. In the trailing four quarters, the company beat the Zacks Consensus Estimate twice and missed the same on two other occasions. However, it has an average four-quarter positive surprise of 11.9%.
Hallador Energy Co.HNRG , formerly known as Hallador Petroleum Company, is engaged in the production of steam coal. The company's primary operating property is the Carlisle underground coal mine located in western Indiana. Last quarter, the company posted earnings of 19 cents while the Zacks Consensus Estimate was pegged at a loss of 2 cents.
Advanced Accelerator Applications S.A.AAAP is a radiopharmaceutical company. The company, develops, produces and commercializes molecular nuclear medicine diagnostic and therapeutic products. Last quarter, the company posted a loss of 4 cents while the Zacks Consensus Estimate was of a loss of 24 cents.
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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 reportPRIMO WATER CP (PRMW): Free Stock Analysis ReportHALLADOR ENERGY (HNRG): Free Stock Analysis ReportHORIZON GLBL CP (HZN): Free Stock Analysis ReportADV ACCELERATOR (AAAP): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research