3 Top-Ranked Relative Price Strength Stocks You Can't Ignore
Last week, Wall Street posted the worst first half of a year in decades. With market participants concerned that the U.S. central bank’s rate-hiking campaign to fight the persistently high inflation might trigger an eventual recession, the major U.S. equity indices have been caught up in a selloff. In the end, the first six months of 2022 were of immense pain for investors, with the S&P 500 — regarded as one of the finest reflections of the stock market as a whole — tumbling 20.6%, marking its worst first half since 1970.
There is, however, a silver lining. For starters, the labor market remains strong, with unemployment near a 50-year low. Consumer demand, though having slowed, still remains robust. But such positive developments are in the minority and most of the macroeconomic signals today are overwhelmingly bearish.
In addition to fears that the Fed’s aggressive monetary stance to fight mounting inflation could push the economy into a recession, per a large section of market watchers, prolonged supply-chain devastation stemming from China’s stringent COVID-19 curbs and the termination of the easy-money policy are likely to reduce aggregate demand, slowing the economy in the process. In other words, it is likely that the mayhem will continue in the near term amid growing concerns about rising interest rates and economic sluggishness.
For investors who might want to stay exposed to the market during this uncertain phase, it is time to 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.
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 — 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 the three stocks that made it through the screen:
The Chefs’ Warehouse, Inc. CHEF: The Ridgefield, CT-based firm is a distributor of specialty food to dining restaurants, hotels, and culinary schools in the United States and Canada. Founded in 1985, The Chefs’ Warehouse has a VGM Score of B.
For 2022, CHEF has a projected earnings growth rate of 2,540%. Valued at around $1.5 billion, The Chefs’ Warehouse shares have gained around 32.8% in a year.
Quanex Building Products Corporation NX: Quanex Building Products is a supplier of construction industry components to original equipment manufacturers. The fiscal 2022 Zacks Consensus Estimate for this Houston, TX-based firm indicates 34.3% year-over-year earnings per share growth. NX has a VGM Score of B.
Quanex Building Products beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 30.2%, on average. NX shares have lost around 2.9% in a year.
Franklin Covey Co. FC: Franklin Covey specializes in providing solutions to help organizations improve performance. The fiscal 2022 Zacks Consensus Estimate for the Salt Lake City, UT-based firm indicates 2.1% year-over-year earnings per share growth. FC has a VGM Score of B.
Franklin Covey beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 237%, on average. SAFM shares have gained around 31.4% in a year.
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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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Quanex Building Products Corporation (NX) : Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
Franklin Covey Company (FC) : Free Stock Analysis Report
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