Wall Street is currently experiencing a tumultuous race thanks mainly to inflationary worries and fears stemming from the Omicron variant of COVID-19. As a result, high valuation stocks have recently come under criticism. But investors are likely to be struck by fears of overvaluation and dumping actions which have seen huge price hikes in recent times.
Investors generally believe that the lower the P / E, the higher the stock’s value will be. But there’s more to this whole P / E or valuation thing, because not only a low P / E, but also stocks with a rising P / E can deliver solid returns.
SunOpta STKL, LaZBoy LZB,Trevi Therapeutics TRVI,Tapestry TPR and Oncolytics Biotech ONCY are one of those stocks.
P / E on the rise: a useful tool
Typically, the price of a stock goes up on higher profits. As expectations for expected earnings increase, demand for the stock should drive its price. After all, a stock’s P / E gives an indication of how much investors are willing to shell out for every dollar in profit. So, if a stock’s P / E rises steadily, it means investors are placing their hopes on the inherent strength of the company.
Additionally, studies have found that stocks have seen their P / E ratios jump over 100% from their break point in the cycle. So, if you can pick stocks early in their breakout cycle, you can end up making huge gains.
The winning strategy
In order to preselect stocks that show increasing P / E, we have chosen the following as the main selection parameters.
The estimate of EPS growth for the current year is greater than or equal to the actual growth of last year
Percentage change in last year’s EPS must be greater than or equal to zero
(These two criteria indicate stable earnings or a trend of growth over time.)
Four-week price percentage change greater than 12-week price percentage change
12-week price percentage change greater than 24-week price percentage change
(These two criteria show that the stock price increases steadily during these periods.)
Four-week percentage price change vs. S&P 500 greater than 12-week percentage price change vs. S&P 500
12-week percentage price change from the S&P 500 greater than the 24-week percentage price change from the S&P 500
(Here, the arguments for constant price gains get even stronger as they point to percentage price changes from the S&P 500.)
The price change percentage for 12 weeks is 20% greater than or equal to the price change percentage for 24 weeks, but it must not exceed 100%
(A 20% increase in a stock’s price from the breakout point gives hints of an impending uptrend. But a surge of more than 100% indicates that there is limited room for improvement and that the action may need to undergo a reversal.)
In addition, we place a few other criteria that lead us to probable outperformances.
Rank of Zacks less than or equal to 2: Only companies with a Zacks # 1 (strong buy) or 2 (buy) rating can pass.
Average volume over 20 days greater than or equal to 50,000: A high trading volume implies that stocks have adequate liquidity.
These few criteria reduced the universe from over 7,700 stocks to just 53.
Here are five of the 53 actions:
SunOpta (STKL): SunOpt is an operator of high growth ethical companies, focusing on integrated business models in the natural and organic food, supplements and health and beauty markets. STKL stock carries a Zacks Rank # 2. You can see The full list of today’s Zacks # 1 Rank stocks here.
SunOpta has three business units: SunOpta Food Group, Opta Minerals Group and SunOpta BioProcess Group.
LaZBoy (LZB): LaZBoy is one of the world’s leading manufacturers of residential furniture, marketing furniture for every room in the house. LZB stock carries a Zacks Rank # 2.
The companies in the La-Z-Boy Upholstery segment are La-Z-Boy and England. The Casegoods segment consists of three brands: American Drew, Hammary and Kincaid. The company-owned retail segment of the La-Z-Boy Furniture Galleries.
Trevi Therapeutics (TRVI): Zacks Rank # 2 Trevi Therapeutics is a clinical stage biopharmaceutical company.
Trevi Therapeutics is focused on the development and commercialization of nalbuphine ER to treat serious neurological conditions.
Upholstery (TPR): Tapestry, formerly known as Coach, Inc., is the designer and distributor of quality accessories and gifts for women and men in the United States and around the world. TPR stock carries a Zacks Rank # 2.
Tapestry offers lifestyle products including handbags, accessories for women and men, shoes, jewelry, seasonal clothing collections, sunglasses, travel bags, perfumes and watches.
Oncolytics Biotech (ONCY): Oncolytics Biotech, Inc. is focused on the discovery and development of pharmaceuticals for the treatment of a wide variety of human and companion animal cancers. ONCY has a Zacks Rank # 2.
Oncolytics Biotech was formed to explore the oncolytic capacity of reovirus, which preferentially replicates in cells with an activated Ras pathway, one of the most common families of genetic defects leading to cancer.
You can get the rest of the stocks on this list by signing up now for your 2 week free trial of the Research Assistant and start using this screen in your own trading. In addition, you can also create your own strategies and test them out before you get into investing.
The Research Assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.
Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance.
Zacks names “best single choice to overtake”
Among thousands of stocks, 5 Zacks pundits each chose their favorite to soar + 100% or more in the coming months. Of these 5, research director Sheraz Mian chooses one to have the most explosive advantage of all.
You’ve known this company from its past glory days, but few would expect it to be ready for a monster turnaround. Fresh out of a successful repositioning and flush with top celebrity mentions, it could rival or overtake other recent Zacks stocks which are expected to double as Boston Beer Company which climbed + 143.0% in just over 9 months and Nvidia which exploded + 175.9% in a year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.