Beat the Market

This article was originally published by Zacks.com.

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), then 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 or, 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 these stocks 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 your radar screen through 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.” There are periods where virtually everything is going down. So screening for absolute positive price changes will oftentimes 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 — Four weeks greater than 0

• Relative % price change — One week greater than 0

(I'm looking for stocks that are outperforming the S&P 500 over the last 12 weeks, four weeks and one 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 five stocks that made it through this week's screen:

Crestwood Midstream Partners LP (CMLP)

Diodes Incorporated (DIOD)

Evercore Partners Inc. (EVR)

Mohawk Industries, Inc. (MHK)

XL Group plc (XL)

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

Kevin Matras is a Vice President at Zacks Investment Research, where he is the fundamental stock screening and technical chart patterns expert.

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