Although the first half of the calendar year was difficult, Wall Street rallied strongly in July, posting its best month since November 2020. Economic data released in recent weeks, in addition to strong corporate earnings, reaffirmed the stability of the American economy. Unsurprisingly, the S&P 500 index is up more than 13% since its mid-June lows.
Okay, July’s rally ended six months of harsh market slump, but market participants are still split on whether the market has bottomed or witnessed a rally. bear market relief. Additionally, the housing market – one of the booming sectors during the pandemic – has fallen precipitously since April. In other words, there are still factors at play that could dampen the recent bullish mood.
In today’s choppy market environment, for investors who want to stay exposed to the stock pattern, it’s time to focus on the right investment opportunities. One of the ways to identify these potential plays is to look for signs of relative price strength.
Relative Price Strength Strategy
Whether a stock has the potential to offer considerable returns is primarily determined by its earnings and valuation ratios. Simultaneously, it is essential to check whether its price performance exceeds that of its peers or the industry average.
After such a comparison, if we find that a stock is unable to adjust to broader sector growth despite impressive earnings momentum or valuation multiples, it may be best to avoid it.
However, those that outperform their respective industries or benchmarks should be included in your portfolio as they are more likely to achieve significant returns. Picking a stock that outperforms its peers ensures you have a winning option in your hands.
Again, determining whether an investment has relevant upside potential is imperative when considering stocks with significant relative price strength. Stocks that outperform the S&P 500 for at least 1-3 months and have strong fundamentals indicate room for growth and are the best ways to implement this strategy.
Finally, it is crucial to know if analysts are optimistic about the future profits of these companies. To do this, we have added positive estimate revisions for current quarter (Q1) earnings to our screen. When a security undergoes an upward revision, it leads to additional price gains.
Relative % price change – 12 weeks greater than 0
Relative % price change – 4 weeks above 0
Relative % price change – 1 week greater than 0
(We considered stocks that have outperformed the S&P 500 over the past 12 weeks, four weeks and one week.)
% change (Q1) Est. over 4 weeks greater than 0: Positive revisions to current quarter estimates over the past four weeks.
Zacks Rank equal to 1: Only Zacks Rank #1 (Strong Buy) stocks — which have returned more than 26% annually for the past 26 years and have topped the S&P 500 in 23 of the past 26 years — can pass. You can see the full list of today’s Zacks #1 Rank stocks here.
Current Price greater than or equal to $5 and 20-Day Average Volume greater than or equal to 50,000: A minimum price of $5 is a good standard to screen for low-priced stocks, while 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 of #1 or #2 (buy) offer the most upside potential.
Here are five of the 14 stocks that crossed the screen:
Axcelis Technologies, Inc. (ACLS – Free Report): The Beverly, Mass.-based company is a leading supplier of ion implantation equipment to the semiconductor industry. Founded in 1978, Axcelis Technologies has a VGM score of B.
For 2022, the ACLS forecasts an earnings growth rate of 53.5%. Valued at around $2.4 billion, Axcelis Technologies shares have gained around 72.4% in one year.
Hertz Global Holdings, Inc. (HTZ – Free report): It is one of the world leaders in vehicle rental. Hertz Global has a VGM score of B. Over the past 30 days, Estero, Fla.-based HTZ has seen the Zacks consensus estimate for 2022 increase by 12.8%.
Hertz Global has beaten the Zacks consensus estimate for earnings in each of the past four quarters, averaging 13.5%. Valued at around $7.7 billion, HTZ has gained some 30% in one year.
United Rentals, Inc. (URI – Free Report): The Stamford, Connecticut-based company is the world’s largest equipment rental company. Founded in 1997, United Rentals has a VGM score of A.
For 2022, URI forecasts an earnings growth rate of 40.7%. Valued at around $22.2 billion, United Rentals shares have lost around 3.6% in one year.
Universal Logistics Holdings, Inc. (ULH – Free Report): Universal Logistics Holdings is a provider of customized transportation and logistics solutions in North America and Colombia. The Zacks 2022 consensus estimate for the Warren, Mich.-based company points to earnings per share growth of 80.1% year-over-year. ULH has a VGM score of A.
Universal Logistics has beaten Zacks’ consensus estimate for earnings in each of the past four quarters. It has a four-quarter earnings surprise of about 73.7%, on average. ULH stock has gained about 66.7% in one year.
Clearwater Paper Corporation (CLW – Free report): Clearwater Paper operates in the tissue and paperboard industry. The Zacks 2022 consensus estimate for the Spokane, WA-based company points to earnings per share growth of 249.5% year-over-year. CLW has a VGM score of A.
Clearwater Paper has beaten Zacks’ consensus estimate for earnings in three of the past four quarters. It has a surprise on earnings for the last four quarters of about 28.8% on average. CLW shares have gained about 33.6% in one year.
You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.
The research assistant is a great starting point. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your search assistant trial today. And the next time you’re reading an economic report, open up the research assistant, plug in your findings, 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 the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.
Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance.