Focus on Relative Price Strength to Soften the Coronavirus Blows

Fears are growing over the impact of the fast spreading novel coronavirus (COVID-19) on business as the raging pandemic crushes economies and destroys equities. In the meantime, oil prices are experiencing growing pains with the contagion-induced lockdown crippling demand amid a no-holds-barred price war between Saudi Arabia and Russia. In a nutshell, there is no escaping the resulting chaos in the markets.

While the volatility and uncertainty will continue until the coronavirus recedes, it would be prudent not to panic and focus on the big picture. Agreed, some heartburn is inevitable but having an investing plan and sticking with it might turn this current selloff into an opportunity to buy solid names at depressed prices. One of the ways potential stock ideas could be identified is to look for signs of relative price strength.

The Relative Price Strength Approach

Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s important to measure the performance of such a stock relative to its industry or peers, or the appropriate benchmark.

If you see that a stock is underperforming on fundamental factors, then it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance to provide considerable returns.

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

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 the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Current Price greater than or equal to $5 and Average 20-day Volume greater than or equal to 50,000: A minimum price of $5 is a good standard to screen low-priced stocks, while a high trading volume would imply adequate liquidity.

VGM Score less than or equal to B: Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential.

Here are five stocks that made it through the screen:

Ampco-Pittsburgh Corporation AP: Ampco-Pittsburgh ,together with its subsidiaries, is a producer and marketer of custom designed engineering solutions to commercial and industrial users worldwide. The 2020 Zacks Consensus Estimate for this Carnegie, PA-headquartered company is 38 cents, representing 2.7% earnings per share growth over 2019. Next year’s average forecast is 46 cents pointing to another 21.1% growth. Ampco-Pittsburgh has a VGM Score of A.

Kaleyra, Inc. KLR: Cloud-based communications solutions provider for financial institutions and enterprises, Kaleyra has a VGM Score of B. Over 30 days, the Italy-based company has seen the Zacks Consensus Estimate for 2020 and 2021 increase 18.2% and 5.4% to 26 cents and 39 cents per share, respectively.

Booz Allen Hamilton Holding Corporation BAH: Booz Allen Hamilton, headquartered in McLean, VA, is a leading provider of high-end management, engineering and technology consulting services primarily to the U.S. government. The firm has a VGM Score of B and a solid earnings surprise history having surpassed estimates in each of the last four quarters, the average being 10.3%.

Grocery Outlet Holding Corp. GO: Grocery Outlet operates as a retailer of consumables and fresh products in the U.S. Sporting a VGM Score of B, this EmeryVille, CA-headquartered company’s expected EPS growth rate for three to five years currently stands at 10.8%, comparing favorably with the industry's growth rate of 8.8%.

The Cardinal Health CAH: Founded in 1971 and headquartered in Dublin, OH, Cardinal Health is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company has a VGM Score of A and an enviable earnings surprise history having surpassed estimates in each of the last four quarters. Earnings surprise was 18.2%, on average.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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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: https://www.zacks.com/performance.

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Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
 
Ampco-Pittsburgh Corporation (AP) : Free Stock Analysis Report
 
Booz Allen Hamilton Holding Corporation (BAH) : Free Stock Analysis Report
 
Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report
 
GigCapital, Inc. (KLR) : Free Stock Analysis Report
 
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