So far in 2015, both the Nasdaq Composite and the Nasdaq-100 have gained almost 9%, easily outdoing the S&P 500’s paltry 2% returns.
Click to Enlarge That’s no coincidence. The strength of the Nasdaq’s returns are deeply rooted in a group of relative strength leaders — but it’s a group that appears to be shrinking as we head into the seasonally weak month of August.
The good news is that those who are sticking around in the “relative strength pack” are strong and ready to run through the second half of this year. It just takes some looking to find the real gems.
The accompanying table identifies our “Lucky 13” relative strength leaders. All of these companies fit the bill as bullish candidates to continue leading the Nasdaq, as they’re still not too crowded with bullish investors.
However, three stocks in particular stand out as must-have stocks to buy for the rest of the year.
Stocks to Buy for Relative Strength: Hasbro (HAS)
The Nasdaq Composite is thought of as a group of innovative technology companies, not low-volatility dividend yielders, but Hasbro (HAS) is exactly the latter.
Hasbro continues to innovate with its product line — some would argue better than Apple (AAPL) — while paying a modest 2.3% dividend. On its own, that yield might not have much appeal, but it’s great when paired with HAS shares’ growth potential.
Currently, only 55% of the analysts covering HAS shares have it ranked a “buy,” and the shorts are betting that Hasbro won’t keep ringing the “new highs” bell. Well, we think they’re wrong, and we think a short-covering rally is imminent.
We like the combination of strong technical and negative sentiment, and consider Hasbro one of a few stocks to buy for relative strength for the rest of the year.
Stocks to Buy for Relative Strength: Dunkin Brands (DNKN)
After spending 2014 getting its balance sheet in order, Dunkin Brands (DNKN) is back on top of the leadership bunch with a year-to-date return of nearly 30%. The popular East Coast coffee-and-donut joint is pressing forward with its expansion plans to challenge Starbucks (SBUX), but they’re not there yet.
Dunkin’s YTD performance hasn’t been as strong as Starbucks, but the fact that the Street is exhibiting pessimism toward DNKN has us betting that the gap between the two coffee giants will start to close.
For example, only 48% of the analyst covering DNKN have it ranked a “buy,” while 83% of those following SBUX have it ranked a “buy.” All things considered equal, we always opt for the lesser-loved stock in these situations as they offer better opportunities for analyst upgrades to drive the crowd into buying more shares.
Stocks to Buy for Relative Strength: Express Scripts (ESRX)
Express Scripts (ESRX) has spent the past few months consolidating below $95, but appears ready to start making a move higher again. This healthcare stock manages prescription services, a side of the business that is not going to shrink over the next 10 years. Year-over-year revenue continues to see positive growth along with earnings, which just came in better than expectations.
ESRX currently boasts one of the highest short interest ratios on our list of tradable Nasdaq companies, putting it in position for a powerful short covering rally. The shorts will find themselves tripping over each other to cover their shorts, as the current ratio lies at 23 times the stock’s average daily volume tied-up in short positions.
A solid move above the $95 level, representing new highs for the stock, will likely trigger the covering rally, acting as a catalyst that will likely drive ESRX another 20% higher.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
