By Nalak Das –
The U.S. stock market has performed fairly well year to date despite the coronavirus onslaught over the last few months. Wall Street has performed fairly well so far in 2020 after recovering impressively from the pandemic-led bear market. At present, all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are in positive territory year to date.
The Dow slipped to bear territory on Mar 11 and was joined by the S&P 500 and the Nasdaq Composite a day later. The downtrend continued till Mar 23 when all the three major stock indexes slumped. Wall Street has witnessed a V-shaped recovery since Mar 23 barring fluctuations in September and October, which helped it to exit the coronavirus-induced short bear market and form a new bull market.
On Dec 4, the three above-mentioned large-cap centric indexes along with the mid-cap specific S&P 400 and small-cap centric Russell 2000 and S&P 600 indexes recorded all-time highs. This impressive turnaround was predominantly driven by the astonishing growth of large-cap technology stocks together with the cyclical reopening stocks on COVID-19 vaccine hopes.
At this stage, wouldn’t it be a safer strategy to look for stocks that are winners and have the potential to gain further?
Sounds Good? Here’s How to Execute It:
One should primarily target stocks that have freshly been on a bull run. Actually, stocks seeing price strength recently have a high chance of carrying the momentum forward.
If a stock is continuously witnessing an uptrend, there must be a solid reason or else it would have probably crashed. So, looking at stocks that are capable of beating the benchmark that they have set for themselves seems rational.
However, recent price strength alone cannot create magic. Therefore, you need to set other relevant parameters to create a successful investment strategy.
Here’s how you should create the screen to shortlist the current as well as the potential winners.
Percentage Change in Price (4 Weeks) greater than zero: This criterion shows that the stock has moved higher in the last four weeks.
Percentage Change Price (12 Weeks) greater than 10: This indicates that the stock has seen momentum over the last three months. This lowers the risk of choosing stocks that may have drawn attention due to the overwhelming performance of the overall market in a very short period.
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the stock’s future performance.
Current Price greater than 5: The stocks must all be trading at a minimum of $5.
Current Price/ 52-Week High-Low Range more than 85%: This criterion filters stocks that are trading near their respective 52-week highs. It indicates that these are strong enough in terms of price.
Just these few criteria have narrowed down the search from over 7,700 stocks to just 14.
Here we present five out of those 14 stocks:
Aviat Networks Inc. AVNW designs, manufactures and sells an array of wireless networking products, solutions, and services in North America, Africa, the Middle East, Europe, Russia, Latin America, and the Asia Pacific.
The stock price has soared 61% in the past four weeks. The company has expected earnings growth of 95.4% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved 18% over the last 30 days.
Merchants Bancorp MBIN operates as a diversified bank holding company in the United States. It operates through the Multi-family Mortgage Banking, Mortgage Warehousing, and Banking segments.
The stock price has jumped 27.1% in the past four weeks. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 33% over the last 60 days.
Honda Motor Co. Ltd. HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Life creation and Other Businesses.
The stock price has climbed 14.5% in the past four weeks. The company has expected earnings growth of 97.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 25.3% over the last 30 days.
APi Group Corp. APG provides commercial life safety solutions and industrial specialty services primarily in the United States. It operates through three segments: Safety Services, Specialty Services, and Industrial Services.
The stock price has surged 11.9% in the past four weeks. The company has expected earnings growth of 26.3% for next year. The Zacks Consensus Estimate for the current year has improved by 11.8% over the last 30 days.
Matson Inc. MATX provides ocean transportation and logistics services. Its Ocean Transportation segment offers ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska, and Guam, as well as to other island economies in Micronesia.
The stock price has gained 4.7% in the past four weeks. The company has expected earnings growth of 94.8% for the current year. The Zacks Consensus Estimate for the current year has improved 24% over the last 30 days.