Top Stocks with Big Potential Catch-Up Moves - Screen of the Week
November 05 2013 - 2:23AM
Zacks
Given the recent run-up in the market, here's a screen I've been
using recently for my own stock picking.
First, it focuses on the top Zacks Ranked Sectors and
Industries. Then it focuses on the Zacks Rank #1s, #2s and #3s,
which are Strong Buys, Buys and Holds, respectively. But then it
selects the outperforming stocks with the smallest percentage price
change over the last 4 weeks.
Why would I do something like that?
Here's why.
You've probably heard the old adage that roughly half of a
stock's price movement can be attributed to the group that it's in.
And that's true. In fact, oftentimes, even a mediocre stock in a
top group will outperform a top stock in a poor group for this very
reason.
Now, take a look at any top group. You'll see plenty of
fantastic stocks with some impressive price gains in there. But not
every stock in every group moves in lockstep at the exact same
time. Some will move more than others at any given time.
So by focusing on the stocks with the smallest percentage price
change with fundamentals that are just as good as those making the
biggest price change, you might find yourself getting into the
stocks ready to make the biggest potential catch-up move.
Here's how to set up that screen:
- Best Zacks Ranked Sectors -- Best 8
We're screening for only those stocks with the best (lowest)
average Zacks Rank. With 16 sectors, the best 8 sectors give us the
best 50% of sectors.
- Best Zacks Ranked Industries -- Best 132
Next step is to get only the best Zacks Ranked Industries coming
thru. Since there are 264 'X' or expanded industries we look at,
the best 132 will give us the best 50% of industries. But note that
only the industries that also happen to be in the top sectors will
get thru. If an industry is ranked as one of the best but it's
outside of the top sector rank, it will not get thru.
- Zacks Rank less than or equal to 3
Now the screen gets narrowed down even more by looking at only the
Zacks Rank #1s, #2s and #3s. No Sells or Strong Sells (Zacks Rank
#4s and #5s) allowed.
- Price and Avg. Volume greater than or equal to $5 and
100,000 shares
Only stocks over $5 with at least an average of 100,0000 shares
traded daily will be considered.
- Relative % Price Change -- 4 Weeks greater than 0
This means we're screening for only those stocks that have
outperformed the market (S&P 500) over the last 4 weeks.
- % Change in Price -- 4 Weeks: Bottom 50
Then finally we're scanning for the bottom 50 stocks with the
lowest percentage price change over the last 4 weeks. So while all
of these stocks have outperformed the market, they increased in
price less than their peers.
So each one of these stocks is in a top Sector and top Industry
within that Sector. This alone will tip the odds of success in your
favor by a great deal when you consider that the best Zacks Ranked
groups outperform the worst ones by a factor of 2 to 1.
Then by selecting those stocks with the best Zacks Rank along
with the best price performance over the last 4 weeks, you now have
only a list of winners from which to choose from.
And from that list of winners, we're selecting the ones that
have gained less than their peers on that list. Remember, these
stocks aren’t 'dogs' or unresponsive stocks. Quite the contrary;
they have all outperformed the market. It just so happens that they
increased less than the others on the list. But because they are a
top rated stock in a top rated industry, we've singled these out as
the ones that could make the biggest move to 'catch-up' to the
others.
It's an interesting screen that has generated a lot of great
names.
Here are 5 from that list:
LG The Laclede Group
SHOO Steven Madden
UHS Universal Health Services
VRSK Verisk Analytics
WTFC Wintrust Financial
All great looking stocks that seem to have lots more upside in
store for them.
Get the rest of the stocks on the list and start putting this
and other ideas to the test. It can all be done with the Research
Wizard stock picking and backtesting software.
Sign up now for your two week free trial.
Disclosure: Officers, directors and/or employees of Zacks
Investment Research may own or have sold short securities and/or
hold long and/or short positions in options that are mentioned in
this material. An affiliated investment advisory firm may own or
have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and
strategies are available at:
http://www.zacks.com/performance.
LACLEDE GRP INC (LG): Free Stock Analysis Report
STEVEN MADDEN (SHOO): Free Stock Analysis Report
UNIVL HLTH SVCS (UHS): Free Stock Analysis Report
VERISK ANALYTIC (VRSK): Free Stock Analysis Report
WINTRUST FINL (WTFC): Free Stock Analysis Report
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