Earnings growth and valuation multiples are indeed important for investors to determine a stock's ability to offer considerable returns. But these are also essential in determining whether a stock’s price performance is better than its peers or the industry average.
If a stock’s performance is lacking that of the broader groups despite 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.
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.
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 (Strong Buy) 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 four stocks that made it through the screen:
AMN Healthcare Services, Inc. AMN: AMN Healthcare Services, headquartered in San Diego, CA, is a travel healthcare staffing company that recruits and places nurses, physicians, and other healthcare professionals in travel or permanent assignments in acute-care facilities, physician practice groups, and other healthcare facilities. 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 6%.
Kemper Corporation KMPR: Kemper is a provider of home, auto, life, and health insurance products and services to individuals, families, and businesses in the United States. The 2019 Zacks Consensus Estimate for this Chicago, IL-based company is $5.75, representing some 31.6% earnings per share growth over 2018. Next year’s average forecast is $6.30 pointing to another 9.6% growth. Kemper has a VGM Score of B.
United Airlines Holdings UAL: United Airlines operates more than 4,800 flights (mainline and regional) a day to 353 airports across multiple destinations. Sporting a VGM Score of A, this Chicago, IL-headquartered carrier’s expected EPS growth rate for three to five years currently stands at 20.9%, comparing favorably with the industry's growth rate of 17.2%.
UniFirst Corporation UNF: One of the largest providers of workplace uniform rentals and protective work gear in North America, UniFirst has a VGM Score of B. Over 30 days, the Wilmington, MA-based company has seen the Zacks Consensus Estimate for FY 2019 and FY 2020 increase 9.2% and 8.9%, to $8.58 and $8.23 per share, respectively.