“In the stock game, winning means reaching a higher price”. However, striking the right chord each time needs a fair amount of luck.
No matter how disciplined and systematic investors are, equity market volatility will always manage to get the better of them. While a few lucky ones rake in the moolah, others fall victim to ad hoc strategies.
One could resort to commonly used techniques to find beaten-down stocks that have the potential to recover faster than others. However, even such investment choices bear the risk of disappointment. Particularly, one could fall into the value trap if the hidden weaknesses in selected stock are not identified.
So, wouldn’t it be a safer strategy to look for stocks that are winners currently and have the potential to gain further?
Sounds a good idea? Here is how to execute it:
One should primarily target stocks that have recently 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.
Screening Parameters:
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 narrowed down the universe from over 7,700 stocks to just ten.
Here we present four stocks out of those 10:
Ameresco Inc. (AMRC - Free Report) provides comprehensive energy services for businesses and organizations in North America and Europe. The company’s stock price has advanced 13.6% in the last four weeks. It has expected earnings growth of 17.3% for current year. The Zacks Consensus Estimate for the current year has improved by 15.9% over the trailing 60 days.
Great Lakes Dredge & Dock Corp. (GLDD - Free Report) provides dredging services in the United States and internationally. The company’s stock price has advanced 15.3% in the last four weeks. It has expected earnings growth of 170.6% for current year. The Zacks Consensus Estimate for the current year has improved by 2.2% over the last 60 days.
Clarus Corp. (CLAR - Free Report) develops, manufactures, and distributes outdoor equipment and lifestyle products with focus on the climb, ski, mountain, and sport categories. The company’s stock price has increased 6.8% in the last four weeks. It has expected earnings growth of 25% for current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 60 days.
DLH Holdings Corp. (DLHC - Free Report) operates as a genomic diagnostics company in the United States and internationally. The company’s stock price has risen 10.1% in the preceding four weeks. It has expected earnings growth of 300% for current year. The Zacks Consensus Estimate for the current year has improved by 14.3% in the last 60 days.
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