Fed Chairman Jerome Powell’s speech at the Brookings Institution, where he indicated that the magnitude of the interest rate hike is likely to be reduced from December — did wonders for the stock market. The dovish comments provided a late boost to an already winning November, with the S&P 500 climbing 5.4% for the month.
A favorable reading on yesterday’s Personal Consumption Expenditures (PCE) inflation report (the Fed's preferred measure of price rises) and an upward revision to Q3 GDP have added to the positive sentiment.
However, we are not out of the woods, as Powell also remarked that the monetary policy will remain restrictive until the inflation rate declines considerably. Less-than-expected ADP employment numbers, declining pending home sales and the first shrinkage in U.S. manufacturing activity in two and a half years have also dampened the sentiment somewhat.
As such, extremely volatile trading in U.S. markets since the beginning of 2022 is expected to persist. Risks stemming from recession fears, geopolitical tensions and dwindling liquidity may also lead to a rough road for equities.
In the current jittery market environment, investors who might want to stay exposed to the equity setup should focus on good investment opportunities. One of the ways such potential plays could be identified is to look for signs of relative price strength.
Relative Price Strength Strategy
Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s essential to measure the performance of such a stock relative to its industry or peers, or an appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, 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 of providing 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 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.
Finally, it is crucial to find out whether analysts are optimistic about the upcoming earnings 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, 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 — 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 13 stocks that made it through the screen:
Tecnoglass TGLS: The firm produces, sells and installs architectural glass and related aluminum products for residential construction markets. The 2022 Zacks Consensus Estimate for Colombia-based Tecnoglass indicates 76.4% year-over-year earnings per share growth. TGLS has a VGM Score of B.
Tecnoglass beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of 26.9%, on average. TGLS stock has lost 4.4% in a year.
Perion Network PERI: Based in Israel, the company is a digital advertising solutions provider to brands, agencies, and publishers. Perion Network’s expected EPS growth rate for three to five years is currently 25%, which compares favorably with the industry's growth rate of 17%. PERI has a VGM Score of A.
Notably, Perion Network beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of 27.8%, on average. PERI shares have gone up 21% in a year.
Hudson Technologies HDSN: It is active in the HVACR industry (Heating, Ventilation, Air Conditioning and Refrigeration) space and focuses on supplying and reclaiming refrigerants. Hudson Technologies has a VGM Score of A. Over the past 30 days, Woodcliff Lake, NJ-based HDSN saw the Zacks Consensus Estimate for 2022 move up 20.7%.
Hudson Technologies beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 297%. Valued at around $508.9 million, HDSN has gained 198.7% in a year.
A-Mark Precious Metals AMRK: The company operates in the integrated precious metals space and deals in gold and silver bullion. The fiscal 2023 Zacks Consensus Estimate for this El Segundo, CA-based firm indicates 7.1% year-over-year earnings per share growth. AMRK has a VGM Score of A.
A-Mark Precious Metals beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 80.3%, on average. AMRK shares have gained 12.4% in a year.
CONSOL Energy CEIX: It is a producer and exporter of thermal coal and metallurgical coal. CONSOL Energy has a VGM Score of A. Over the past 30 days, Canonsburg, PA-based CEIX saw the Zacks Consensus Estimate for 2022 move up 13.7%.
CONSOL Energy beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 34.9%. Valued at around $2.7 billion, CEIX has surged 237.3% in a year.
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.
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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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