Published on 11 Dec 2023 on Zacks via Yahoo Finance
Relative Price Strength Makes These 5 Stocks Excellent Buys
The year 2023 has witnessed an impressive rally on Wall Street, propelled by a consistent decline in inflation and a simultaneous moderation in both the scale and frequency of interest rate hikes by the Federal Reserve. Illustrating this trend, the S&P 500 has surged 20% year to date.Complementing the diminishing inflation, the U.S. economy's fundamentals remain robust. With a staggering 5.1% growth in GDP during the third quarter of 2023 and resilient consumer spending, the economic landscape looks promising. Additionally, signals from the central bank suggest an approaching conclusion to the current rate hike cycle. The anticipation of lower market interest rates is expected to decrease the cost of funds, providing companies with opportunities to initiate projects and boost capital expenditure.Against this positive backdrop, astute investors are concentrating on relative price performance, strategically identifying and investing in promising stocks to achieve accelerated returns.
Relative Price Strength Strategy
Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is essential to check whether its price performance exceeds its peers or the industry average.Upon such comparison, if we find that a stock is unable to match up to wider sectoral growth despite having impressive earnings momentum or valuation multiples, it may be better to avoid it.However, those outperforming their respective industries or benchmarks should be included in your portfolio since they have a higher chance of securing significant returns. Picking a stock that outperforms its peers ensures a winning option on your hands. 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 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.Finally, it is crucial to find out whether analysts are optimistic about the upcoming earnings 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.