Earnings growth and valuation multiples are indeed important for investors to determine whether a stock has the ability to offer considerable returns. But these are also essential in determining whether a stock’s price performance is ahead of its peers or the industry average.
If the stock’s performance is lacking that of the broader groups despite having impressive earnings growth or valuation multiples, then something must be wrong.
It’s always advisable to stay away from these stocks and bet on those that are outperforming their respective industries or benchmarks. This is because betting on a winner always increases the odds of winning.
At the same time, it is important 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.
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, 4 weeks and 1 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 – that 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 five of the eight stocks that made it through the screen:
The Goodyear Tire & Rubber Co. GT: Headquartered in Akron, OH, The Goodyear Tire & Rubber is one of the world’s largest tire manufacturing companies, which sells tires, undertakes automotive repairs and provides other services through 1,100 tire and auto service centers. The company has a VGM score of “A” and an excellent earnings surprise history. It surpassed estimates in each of the last four quarters at an average rate of 10.28%.
Urban Outfitters Inc. URBN: Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products. Sporting a VGM score of “A”, this Philadelphia, PA headquartered company’s expected EPS growth rate for 3 to 5 years currently stands at 15% –– comfortably ahead of the industry growth rate of 13.10%.
Tilly's Inc. TLYS: A specialty retailer of casual clothing, footwear and accessories targeting young men and women, Irvine, CA-based Tilly's has a VGM score of “A”. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2017 and 2018 increased 42% and 24%, respectively, to 27 cents and 31 cents per share.
InterDigital Inc. IDCC: Headquartered Wilmington, DE, InterDigital is a designer and developer of digital cellular and wireless telecommunications systems used in mobile devices and networking equipment. The company has a VGM score of “B” and surprised earnings to the upside in each of the last four quarters.
Finisar Corp. FNSR: Founded in 1987 and Based in Sunnyvale, CA, Finisar is a leading developer of optical communications components and subsystems that enable high-speed data communications in data centers and telecommunication networks. Fiscal 2017 Zacks Consensus Estimate for this company is $1.39, representing 143.86% earnings per share growth over fiscal 2016. The next fiscal year’s average forecast is $1.62, pointing to 16.55% growth. Finisar has a VGM score of “B”.
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.
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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