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Bet on 4 Stocks With Rising P/E to Beat Market Blues

By Zacks Investment ResearchStock MarketsJun 25, 2020 06:55AM ET
www.investing.com/analysis/bet-on-4-stocks-with-rising-pe-to-beat-market-blues-200528839
Bet on 4 Stocks With Rising P/E to Beat Market Blues
By Zacks Investment Research   |  Jun 25, 2020 06:55AM ET
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Investors always look for stocks with low P/E ratios as the measure indicates undervaluation. This ratio is obtained by dividing a stock’s current market price with its historical or estimated earnings. It says how much an investor needs to shell out per dollar of earnings.

In fact, the golden rule is – the lower the P/E of a stock, the higher its value for investors. This is because value investors believe that a stock's current market price is not reflective of its historical/future earnings and therefore chances of outperformance are higher.

But there is another side to the story that points to stocks with an increasing P/E. But this often-overlooked trend can prove pivotal in finding great stocks. Let’s dig a little deeper.

How Can Rising P/E Be Helpful?

Investors should note that stock prices move in tandem with earnings performance. Ifearnings come in stronger, the price of a stock soars. Solid quarterly earnings and guidance in turn boost the earnings forecast, leading to stronger demand for the stock and an uptrend in its price.

So, if the price is rising steadily, it means that investors are assured of the stock’s fundamental strength, expect some strong positives out of it as well as solid and faster earnings growth. Moreover, studies have revealed that stocks have seen their P/E ratios jump over 100% from their breakout point in the cycle. So, if you can pick stocks early in their breakout cycle, you can end up seeing considerable gains.

The Winning Strategy

In order to shortlist stocks that are exhibiting an increasing P/E, we chose the following as our primary screening parameters.

EPS growth estimate for the current year is greater than or equal to last year’s actual growth

Percentage change in last year EPS should be greater than or equal zero

(These two criteria point to flat earnings or a growth trend over the years).

Percentage change in price over four weeks greater than the percentage change in price over 12 weeks

Percentage change in price over 12 weeks greater than percentage change in price over 24 weeks

(These two criteria show that price of the stock is increasing consistently over the said timeframes).

Percentage price change for four weeks relative to the S&P 500 greater than the percentage price change for 12 weeks relative to the S&P 500

Percentage price change for 12 weeks relative to the S&P 500 greater than the percentage price change for 24 weeks relative to the S&P 500

(Here, the case for consistent price gains gets even stronger as it displays percentage price changes relative to the S&P 500).

Percentage price change for 12 weeks is 20% higher than or equal to the percentage price change for 24 weeks, but it should not exceed 100%

(A 20% increase in the price of a stock from the breakout point gives cues of an impending uptrend. But a jump of over 100% indicates that there is limited scope for further upside and that the stock might be due for a reversal).

In addition, we place a few other criteria that lead us to some likely outperformers.

Zacks Rank less than or equal to 2:Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through. You can see the complete list of today’s Zacks #1 Rank stocks here.

Average 20-day Volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 7.

Here are four out of the seven stocks:

Scorpio Tankers (NYSE:STNG) Inc. STNG: This is a provider of marine transportation of petroleum products worldwide. The stock has a Zacks Rank #1.

Synchronoss Technologies (NASDAQ:SNCR) Inc. SNCR: It provides essential mobile solutions for Service Providers and Enterprise through proven and scalable software solutions and platforms. The stock has a Zacks Rank #1.

Restoration Robotics Inc. VERO: This Zacks Rank #2 company designs and develops medical aesthetic equipment.

Jaguar Animal Health (NASDAQ:JAGX) Inc. JAGX: The Zacks Rank #2 company is a natural-products’ pharmaceuticals company.

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.

Click here to sign up for a free trial to the Research Wizard today.

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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Synchronoss Technologies, Inc. (SNCR): Free Stock Analysis Report

Scorpio Tankers Inc. (STNG): Free Stock Analysis Report

Jaguar Animal Health, Inc. (JAGX): Free Stock Analysis Report

Restoration Robotics, Inc. (VERO): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research
Bet on 4 Stocks With Rising P/E to Beat Market Blues
 

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Bet on 4 Stocks With Rising P/E to Beat Market Blues

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