Zacks: A Relative Price Strength Screen for Beating the Market

Written by Kevin Matra

Over the last few weeks, I have found myself screening for stocks with the best Relative Price Changes in an effort to determine whether a stock is good or not.

Of course earnings growth and valuations are important. But if a stock is simply not responding or going down (worse than the market), something’s wrong. Or at the very least, it’s just simply not ready to move higher.

I’ve talked about this kind of stuff in the past – what investors consider to be their best stocks — and the answer is: the ones performing the best, in other words, moving higher.

And it’s the same here.

Stocks moving higher have a tendency of moving even higher.

And the stocks I’ve been looking at recently are indeed the ones moving higher. Especially on good volume, since the overall market volume has been kind of weak.

And if they are moving higher, it’s likely because there’s a good reason for them to be moving higher or else they probably wouldn’t be.

Of course, this doesn’t mean you should only look at its price change.

But by including those kinds of things in your screening, some very interesting stocks will come up.

Maybe some that might’ve just missed your normal fundamental screening. But when you put on your radar screen thru other measures (its price performance for example), you might find that these are just the kinds of companies you’ve been looking for.

Once again, you’ll also notice I said relative price strength. Of course, there are periods where virtually everything is going down. So screening for absolute positive price changes will often times come up with zero results in these periods, just when you need them the most.

But also, when the market is doing nothing but going up, you want to get into the pacesetters and outperformers, not the laggards that are going up only because the rising tide is raising all the ships.

So using the relative price strength will always put the outperformers on your list in both good times and bad.

Parameters

In this week’s screen, I’m looking for relative price change winners that also have the fundamentals to potentially make these gains lasting and continue.

The screen starts off with:

Relative % Price change – 12 weeks greater than 0
Relative % Price change – 4 weeks greater than 0
Relative % Price change – 1 week greater than 0

(I’m looking for stocks that are outperforming the S&P 500 over the last 12 weeks, 4 weeks and 1 week.)

Projected Growth Rate (F1/F0) greater than the S&P 500′s Median Growth Rate
(Not only do I want the price to be responding better than the market. I also want the growth rate to be better than the market as well.)
Zacks Rank equal to 1
(Only Zacks Strong Buys)
Current Price greater than or equal to 5
(They all have to be trading at a minimum of $5 or higher.)
Average 20-Day Volume greater than or equal to 100,000 shares
(And have enough volume to allow easy trading in and out.)

Stocks

Here are 5 stocks that made it thru this week’s screen:

List Average 1-Year Return: 89%.

1. The Allstate Corporation (ALL, Earnings, Analysts, Financials): Engages in the personal property and casualty insurance, life insurance, retirement, and investment products businesses primarily in the United States. Market cap at $19.82B, most recent closing price at $40.88. Free Report

2. Banner Corporation (BANR, Earnings, Analysts, Financials): Operates as the holding company for Banner Bank and Islanders Bank that provide commercial banking and financial products and services to individuals, businesses, and public sector entities. Market cap at $537.2M, most recent closing price at $27.95. Free Report

3. BofI Holding Inc. (BOFI, Earnings, Analysts, Financials): Operates as the holding company for Bank of Internet USA that provides various consumer and wholesale banking services primarily through Internet in the United States. Market cap at $315.83M, most recent closing price at $27.25. Free Report

4. Discover Financial Services (DFS, Earnings, Analysts, Financials): Operates as a credit card issuer and electronic payment services company primarily in the United States. Market cap at $20.08B, most recent closing price at $39.77. Free Report

5. MDC Holdings Inc. (MDC, Earnings, Analysts, Financials): Engages in homebuilding and financial services businesses in the United States. Market cap at $1.87B, most recent closing price at $38.91. Free Report

All strong stocks fundamentally and they are on the move and outperforming the market.

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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: http://www.zacks.com/performance/.

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