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 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 stocks that made it through the screen:
PulteGroup, Inc. PHM: PulteGroup, headquartered in Atlanta, GA, engages in the homebuilding and financial services businesses primarily in the United States. The firm has a VGM Score of A and an excellent earnings surprise history. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 13.5%.
lululemon athletica inc. LULU: lululemon athletica is a yoga-inspired athletic apparel company that creates lifestyle components. The FY 2020 Zacks Consensus Estimate for this Vancouver, Canada-based company is $4.67, indicating some 21.6% earnings per share growth over FY 2019. Next fiscal year’s average forecast is $5.44 pointing to another 16.5% growth. lululemon has a VGM Score of B.
Carlisle Companies Incorporated CSL: Carlisle Companies engages in the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products, finishing equipment and brake as well as friction system solutions. Sporting a VGM Score of B, this Scottsdale, AZ-headquartered company’s expected EPS growth rate for three to five years currently stands at 15%, comparing favorably with the industry's growth rate of 9.6%.
Fly Leasing Limited FLY: Founded in 2007 and headquartered in Dublin, Ireland, Fly Leasing buys commercial aircraft from manufacturers like Boeing and Airbus and leases them out to carriers. The company has a VGM Score of A and an excellent earnings surprise history, having surpassed estimates in each of the last four quarters.
Lithia Motors, Inc. LAD: One of the leading automotive retailers of new and used vehicles, and related services in the United States, Lithia Motors has a VGM Score of A. Over 30 days, the Medford, OR-based company has seen the Zacks Consensus Estimate for 2019 and 2020 earnings per share increase 7.8% and 7.4% to $11.07 and $11.71, respectively.