Kevin Matras Blog | Top Stocks with Big Potential Catch-Up Moves | Talkmarkets
Vice President of Zacks Investment Research

Kevin Matras is a Vice President at Zacks Investment Research, where he is the fundamental stock screening and technical chart patterns expert. He heads the Research Wizard Division at Zacks, which focuses on stock screening and backtesting. Matras also runs the Chart Patterns Trader service, ... more

Top Stocks with Big Potential Catch-Up Moves

Date: Wednesday, July 27, 2016 5:08 AM EDT

Given the recent run-up in the market last week, 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.

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