Investors generally gauge a stock’s potential return by examining earnings growth and valuation multiples. At the same time, it’s important to measure the performance of such a stock relative to its industry or peers, or the appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, then it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance to provide considerable returns.
Then again, it is imperative that you determine whether or not an investment has relevant upside potential when considering stocks with significant relative price strength. Stocks delivering better than the S&P 500 over a period of 1 to 3 months at the least and having solid fundamentals indicate room for growth, and are the best ways to go about this strategy.
Finally, it is important to find out whether analysts are optimistic about the upcoming earnings results of these companies. In order to do this, we have added positive estimate revisions for the current quarter’s (Q1) earnings to our screen. When a stock undergoes an upward revision, it leads to additional price gains.
Screening Parameters
Relative % Price change – 12 weeks greater than 0
Relative % Price change – 4 weeks greater than 0
Relative % Price change – 1 week greater than 0
(We have considered those stocks that have been outperforming the S&P 500 over the last 12 weeks, four weeks and one week.)
% Change (Q1) Est. over 4 Weeks greater than 0: Positive current quarter estimate revisions over the last four weeks.
Zacks Rank equal to 1: Only Zacks Rank #1 (Strong Buy) stocks, which have returned more than 26% annually over the last 26 years and surpassed the S&P 500 in 23 of the last 26 years — can get through.
Current Price greater than or equal to $5 and Average 20-day Volume greater than or equal to 50,000: A minimum price of $5 is a good standard to screen low-priced stocks, while a high trading volume would imply adequate liquidity.
VGM Score less than or equal to B: Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential.
Here are the five of the 19 stocks that made it through the screen:
NetGear, Inc. (NASDAQ:NTGR): Headquartered in San Jose, CA, NETGEAR is a designer, developer and marketer of networking and computing infrastructure products to small businesses and home users. The firm has a VGM Score of B and an excellent earnings surprise history. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 12.2%.
Marathon Petroleum Corp (NYSE:MPC): Marathon Petroleum is a leading independent refiner, transporter and marketer of petroleum products. Sporting a VGM Score of A, this Findlay, OH-headquartered company’s expected EPS growth rate for three to five years currently stands at 11%, comparing favorably with the industry’s growth rate of 9.8%.
Target Corporation (NYSE:TGT): A general merchandise retailer in the U.S. providing an array of goods ranging from household essentials and electronics to toys and apparel for men, women and kids, Target has a VGM Score of B. Over 30 days, the Minneapolis, MN-based company has seen the Zacks Consensus Estimate for FY 2018 and FY 2019 increase 4.2% and 24.9%, to $4.72 and $5.26 per share, respectively.
Humana Inc (NYSE:HUM): Founded in 1964 and headquartered in Louisville, KY, Humana is one of the largest health care plan providers in the United States. The company, which provides health insurance benefits under Health Maintenance Organization (HMO), Private Fee-For-Service (PFFS), and Preferred Provider Organization (PPO) plans, has a VGM Score of A and an enviable earnings surprise history. It surpassed estimates in each of the last four quarters.
Hudbay Minerals Inc (NYSE:HBM): Headquartered in Toronto, Canada, Hudbay is a diversified mining company with exposure to copper and zinc. The 2017 Zacks Consensus Estimate for this company is 50 cents, representing some 316.7% earnings per share growth over 2016. This year’s average forecast is 91 cents, pointing to another 82% growth. Hudbay has a VGM Score of A.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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.
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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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