As we step into the New Year, it is time to focus on good investment opportunities.
Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s important to measure the performance of such a stock relative to its industry or peers, or the appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, then 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 to provide 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 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.
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 12 stocks that made it through the screen:
JD.com, Inc. JD: JD.com is one of the largest online providers of electronics goods and general merchandise products in China. The 2019 Zacks Consensus Estimate for this Beijing-based company is $1.06, indicating 211.8% earnings per share growth over 2018. This year’s average forecast is $1.47 pointing to another 38.7% growth. JD.com has a VGM Score of B.
Talos Energy Inc. TALO: An upstream oil and gas company with operations in the Gulf of Mexico and in shallow water offshore Mexico, Talos Energy has a VGM Score of A. Over 30 days, the Houston, TX-based company has seen the Zacks Consensus Estimate for 2019 and 2020 increase 26.9% and 11% to $2.45 and $2.63 per share, respectively.
Sony Corporation SNE: Sony Corporation, headquartered in Tokyo, manufactures and sales several consumer and industrial electronic equipment. The firm has a VGM Score of B and an excellent earnings surprise history having surpassed estimates in each of the last four quarters, the average being 86.9%.
Performance Food Group Company PFGC: Performance Food Group is a marketer and distributor of food and food-related products from to customer locations across the United States. Sporting a VGM Score of A, this Richmond, VA-headquartered company’s expected EPS growth rate for three to five years currently stands at 10.9%, comparing favorably with the industry's growth rate of 7.8%.
Vipshop Holdings Limited VIPS: Founded in 2008 and headquartered in Guangzhou, China, Vipshop Holdings is an online discount retailer of branded products. The company has a VGM Score of A and a good earnings surprise history having surpassed estimates in three of the last four quarters, the average being 20.9%.