Picking stocks is much more of a work of art than it is a science. If it were a science then we would all know the equation as it would be in a sixth grade science book about how the market works, and if that book does exist know that it is a joke.
I have run screens looking for growth, value and momentum. I have looked at small caps and big caps and all caps in-between. Cash flows and EVA’s and even some high short interest plays have caught my eyes over the years but one of the best methods is even simpler than that.
Jim Chones was the play by play announcer for the Cleveland Cavaliers many years ago when Brad Daughtery ran the hard woods. Jim encouraged the team via the airwaves to get the ball to the big man and then to “stick to your knitting.” He meant that the team should continue to do what it is good at doing. I adopted this phrase and mantra for stock picking as I also look for stocks that are in a space that is working and will likely continue to work.
One of the ways that I am sticking with what is working is to look at the Zacks Industry Rank page. Zacks Ranks the industries so you don’t have to, but more importantly is the one week change. The industries that are already in the top 25% are already on the right track, but when I see one that has moved up substantially I want to see what stocks are in that group.
Let’s look at 5 groups that are seeing strong moves higher and 5 stocks in those groups.
Top Stocks in Top Industries: Sotheby’s (BID)
The Auction or Valuation Services is easily the biggest mover at the top of the Zacks Industry Rank list this week. I see that group holds the #11 spot, up 33 places from last week. There are four stocks in that group with one of them with a Zacks Rank #1 (Strong Buy).
Sotheby’s (BID) is clearly the driver in this group and is coming off of a big beat with a 43% positive earnings surprise. The earnings estimates for the current quarter moved the wrong way, but the estimates for the December quarter are moving the right way (higher). The Zacks Rank is influenced more by the changes in annual earnings estimates, and I see a move from $1.65 to $2.24 in the last thirty days for this year’s numbers. Analysts also see growth for 2017 as those estimates bumped to $2.30 from $2.09 over the same time period.
Top Stocks in Top Industries: Compass Diversified Holdings (CODI)
Moving from the industry rank of #58 to a tie for #20 is the investment fund industry. There are six stocks in this segment and again, one with the best Zacks Rank a stock can achieve. Compass Diversified Holdings (CODI) is a Zacks Rank #1 (Strong Buy) and trades a very palatable forward PE of 12.5x.
I am normally looking for growth, but this is one that value investors will want to look over. The stock has a Value Style Score of “B” with a Growth Style Score of “D” and that is something that I want to see. The divergence in style scores is important to me because growth and value investors are fundamentally looking for different things.
When a stock has a high growth score I tend to gravitate to the ones that also have a low value score.
Top Stocks in Top Industries: Central Garden & Pet Co (CENT)
Coming in at a tie for the #20 slot is the consumer products (miscellaneous discretionary) group.
There are 14 stocks in this segment with 4 stocks holding a Zacks Rank #1 (Strong Buy) and 3 stocks that are a Zacks Rank #2 (Buy). In this space I like Central Garden & Pet (CENT) as it is a Zacks Rank #1 (Strong Buy) and was recently a Bull of the Day.
You can get more details on this stock here: https://www.zacks.com/commentary/89026/bull-of-the-day-central-garden-and-pet-cent
Top Stocks in Top Industries: China Petroleum & Chemical Corp (ADR) (SNP)
Even emerging markets have some integrated oil plays. The first stock that should come to mind in this space is Petroleo Brasileiro SA Petrobras (ADR) (PBR) but that stock is a Zacks Rank #3 (Hold). At the top of the list I see China Petroleum & Chemical Corp (ADR) (SNP) as it is a Zacks Rank #1 (Strong Buy).
At the moment, I am not a big fan of energy names as I see signals of potential oil production increases despite a storm in the Gulf of Mexico.
Top Stocks in Top Industries: Amkor Technology, Inc. (AMKR)
It is no secret that one space has been super hot all year. I like to say that “chips are for dips” but this year I am spending a ton on salsa because chips are all the rage. The semiconductor industry rank moved up 7 slots to #36 and has 36 stocks. That is a big industry grouping so the fact that it has 7 stocks as Zacks Rank #1 (Strong Buy) should not surprise you.
There are a lot of good names in this list and I am going to highlight two of them. First is Amkor Technology, Inc. (AMKR) which is a Zacks Rank #1 (Strong Buy) and a member of the investor service I run at Zacks called Stocks Under $10. I added that stock to the list in early August and we are looking at a solid gain of more than 20%.
Another chip stock that should be of interest is Silicon Motion Technology Corp. (ADR) (SIMO) which is a chips company that focuses on memory chips in a mobile setting. The idea is that mobile chips need to be smaller and use less power so therefore they are going to cost more. Higher prices tags generally mean better margins and that is just scratching the surface for why this stock is worth a deeper look.
There are many ways to look for stocks via screens, but sometimes when the market is looking like it is on a roll it is best just to stick with the winners. I look for winners not only through metrics on individual stocks but also by looking at relative changes in the entire industry.
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Brian Bolan is a Stock Strategist for Zacks.com. He runs Stocks Under $10 Investor service where he looks for low priced stocks that are seeing positive earnings estimate revisions. This popular service has seen some strong early returns and offers a free trial via the Zacks Ultimate service.
Brian also runs the brand new Zacks Game Changers where he looks for stocks that are disrupting their industries and reaping big gains.
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