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 tells 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 will be 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 its 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.
Investors should note that stock prices move in tandem with earnings performance. If earnings 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.
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 five.
Here are all five stocks:
Nabriva Therapeutics AG NBRV: The Zacks Rank #2 biopharmaceutical company is engaged in the research and development of new medicines to treat serious bacterial infections, with a focus on the pleuromutilin class of antibiotics.
Adobe Inc. ADBE: This Zacks Rank #2 company is one of the largest software companies in the world. Adobe picks up licensing fees from customers, which form the bulk of its revenues.
Veeva Systems Inc. VEEV: This Zacks Rank #2 company offers cloud-based software applications and data solutions for the life sciences industry.
Kinsale Capital Group Inc. KNSL: This Zacks Rank #2 company offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. It operates primarily through two markets — Commercial and Personal.
Yext Inc. YEXT: The Zacks Rank #2 company provides digital media technology services. It offers advertising, monetization, phone and directory services which include business listings on search sites and real-time reputation management.
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
Adobe Inc. (ADBE) : Free Stock Analysis Report
Veeva Systems Inc. (VEEV) : Free Stock Analysis Report
Nabriva Therapeutics AG (NBRV) : Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
Yext Inc. (YEXT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Related Quotes
While the fate of borrowers' loan repayments remains in limbo until the end of February, experts are waiting with apprehension of what an upheld Supreme Court ruling will mean, not only for federal…
Laffer Tengler Investments CEO and Chief Investment Officer Nancy Tengler joins Yahoo Finance Live to discuss the state of Tesla stock amid its recent struggles, why earnings season could bring disappointment for investors, and the odds of a recession.
Is this the ultimate safe haven?
‘Should we be redecorating, going to Cancun and Disney World and getting takeout every night instead?’
The outlook for stocks in 2023 is still in flux. Last year’s headwinds haven’t dissipated, so we’ll be dealing with high inflation, rising interest rates, the Russia-Ukraine war, and an increased risk of recession for the foreseeable future, and that has investors taking an interest in defensive plays. The classic move, of course, is to move heavily into dividend stocks. These bring several advantages that can protect an investment portfolio during an unsettled economic period, including a relia
(Bloomberg) — Prominent fixed-income manager Jeffrey Gundlach said investors trying to figure out how the interest-rate situation will play out should pay attention to the bond market rather than the Federal Reserve.Most Read from BloombergUS Safety Agency to Consider Ban on Gas Stoves Amid Health FearsRental Housing Is Suddenly Headed Toward a Hard LandingBrady, Gisele, Patriots’ Bob Kraft Among FTX Shareholders Facing WipeoutApple to Begin Making In-House Screens in 2024 in Shift Away From Sa
Shares of Frontline (NYSE: FRO) had skyrocketed more than 25% by 12:45 p.m. ET on Wednesday, while Euronav's (NYSE: EURN) stock price had plunged more than 15%. Driving the big move in the oil tanker stocks was the termination of their merger agreement. Frontline has abandoned its bid to acquire rival oil tanker Euronav.
Palantir (NYSE: PLTR) and Salesforce (NYSE: CRM) both own cloud-based platforms that gather and analyze large amounts of data to help their clients make smarter decisions. Analysts expect Salesforce to generate $31 billion in revenue in its fiscal 2023 year (which ends this month), or more than 16 times the $1.9 billion in revenue Palantir was expected to generate in 2022. Let's review Palantir's approach to data mining, how much larger it could grow, and if it could evolve into a blue-chip cloud giant like Salesforce in the future.
Bankruptcy attorneys released a long list of names and the number of shares held by former associates and investors.
Does Transocean (RIG) have what it takes to be a top stock pick for momentum investors? Let's find out.
Boeing stock slipped on Jan. 10 after an analyst downgrade. Here's how high it can go from here.
After rising more than 4% in November, shares of Enphase Energy (NASDAQ: ENPH) found themselves considerably less desirable among investors in December — a month in which the stock fell 17.4%, according to data provided by S&P Global Market Intelligence. In addition to an analyst's downgrade on Enphase's stock, insider selling motivated investors to exit their positions in the last month of trading before the new year. While Enphase traded flat for the first couple of weeks in December, the bears started growling on Dec. 15, when Biju Perincheril, an analyst at Susquehanna, downgraded the stock to neutral from positive and assigned it a price target of $365.
Chinese electric vehicle (EV) maker Nio (NYSE: NIO) was one of those, taking some notable swings in value over the past couple of months. The company's American depositary shares maintained that volatile behavior in Tuesday's trading session. After spiking by nearly 6% early, Nio stock slid briefly into the red, then recovered to a gain of 3.3% as of 3:30 p.m. ET.
The SECURE 2.0 Act, signed by President Biden in December 2022, includes dozens of changes to provisions related to tax-advantaged retirement accounts. Among the most important changes is a provision, which took effect Jan. 1 of this year, that delays … Continue reading → The post Your Required Minimum Distributions (RMDs) Have Officially Been Pushed Back appeared first on SmartAsset Blog.
Since Warren Buffett purchased a controlling stake in Berkshire Hathaway in 1965 and made it the foundation for his investing empire, the stock has seen staggering gains of more than 2,677,400%. While Berkshire's market capitalization of roughly $703 billion and status as the world's sixth largest publicly traded company means that its most explosive growth is almost surely in the past, the Oracle of Omaha's company remains one of the best-run investment conglomerates on the planet, and it's absolutely trounced the S&P 500 index across the past year of trading. Snowflake (NYSE: SNOW) might not be a great fit for every investor.
The volatility in the used car market rolled on in 2022, but there might be some relief for car buyers coming this year. The Manheim Used Vehicle Value Index (MUVVI) for the month of December posted a 0.8% increase month over month, however it dropped a whopping 14.9% year over year, the largest annualized decline ever in the 26-year history of the index.
There are several metrics you can use to evaluate whether a rental property investment has potential, including the 2% rule. The 2% rule in real estate dictates that a property's rental income should be at least 2% of the purchase … Continue reading → The post What Is the 2% Rule in Real Estate? appeared first on SmartAsset Blog.
Stocks moving after hours on Jan. 10, 2023: Wells Fargo, Franchise Group
Shares of CureVac (NASDAQ: CVAC) rose as much as 19.1% on Tuesday. Despite the rise, CureVac is down more than 59% over the past year, though it is now up more than 61% over the past three months. Investors continued to flock to the healthcare stock after the biotech announced late Friday that several of its messenger RNA vaccines were doing well in early trials.
Novavax CEO Stanley Erck speaks with Yahoo Finance health care reporter Anjalee Khemlani at the 2023 JPMorgan Healthcare Conference about the impact of the coronavirus pandemic on the health care industry, his legacy at Novavax, and his impending retirement.