Now's the Time to Buy These 5 Relative Price Strength Stocks

The novel coronavirus outbreak triggered an unprecedented sell-off in equities and bonds. Stocks were clobbered and major indices crashed regularly, while in a bizarre turn of events, the U.S. oil futures hit negative territory.

However, over the past few months, markets, securities and crude have rebounded off their pandemic lows. Restrictions have been loosened and the economy has reopened, with activity limping back toward normalcy. Meanwhile, certain drug candidates and treatments offer a ray of hope in the coronavirus fight.

While the heaviest losses may be in the rear-view mirror, with the S&P 500 and the tech-heavy Nasdaq attaining their all-time highs in September, the road to recovery remains long and uncertain amid concerns of soaring new coronavirus infections in many countries, the Fed’s cautious view of the American economy, the upcoming election-related uncertainty and simmering U.S.-China tensions. Confusion over the second stimulus package to prop up the economy is also weighing on the markets.

A few stocks held up even as the coronavirus-induced mayhem knocked down businesses and industries. With the market expected to remain volatile over the near to medium term, one of the ways such potential plays could be identified is to look for signs of relative price strength.

The Relative Price Strength Strategy

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 proves to be lucrative.

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.

Screening Parameters

Relative % Price change – 12 weeks greater than 0

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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 Zacks Investment Research

Written By: Zacks Investment Research