What are we looking for?
Reasonably valued U.S. stocks with strong short-term price momentum.
This week’s tentative deal to avoid another U.S. government shutdown catalyzed a strong move in the entire U.S. market as one significant source of investor angst was taken off the table. Federal Reserve chairman Jerome Powell did much to soothe the markets in his January remarks when he hinted at a more accommodative Fed policy in 2019. With China trade talks back on in Beijing this week, the prospect of more good news for the U.S. economy on the global trade front could be the slingshot to send the major indexes shooting higher.
The screen
We will be using Trading Central Strategy Builder to search for U.S. stocks with reasonable valuations, above-average volume and strong short-term price momentum hinting at further gains should a China trade deal or other positive news materialize.
We will start by screening for stocks with a market capitalization of US$10-billion or more. This will limit our results to the largest and most stable companies. To find firms with reasonable valuations, we will filter for trailing price-to-earnings ratios of 25 or less.
To ensure we are purchasing companies with growing revenues, we will screen for companies with revenues that are up by 7 per cent or more in the most recent quarter compared with the same quarter a year ago. In order to select stocks that are seeing above-average volume, we will pick stocks whose 10-day average volume is at least 110 per cent of the 90-day average. This limits our search to stocks with above average short-term interest from investors.
Last, to find stocks with short-term price momentum, we will filter for companies whose stock prices have risen by 5 per cent or more in the past five trading sessions.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.
What we found
Topping our list is packaged foods giant Conagra Brands Inc. Conagra has the lowest P/E ratio on our list at just 12.9 and recorded year-over-year revenue growth of almost 10 per cent in their most recent quarter. Conagra stock has rallied 7.4 per cent in the past five days as investors have embraced the consumer-staples sector and the low valuation levels of this stock.
Video game maker Electronic Arts Inc. has been on a wild ride in the past two weeks. The company reported third-quarter earnings on Feb. 5 that disappointed the market because of reduced guidance, causing the stock dropped 15 per cent the next day. On Feb. 8, the company announced that its new game, Apex Legends, had signed up 25 million players in its first week, causing the stock to surge nearly 28 per cent in the past five days. Note that the stock also has seen volumes of almost three times the 90-day average in the past 10 trading sessions.
Tractor Supply Co. is a retail chain offering agriculture and home improvement products. The stock has rallied 19 per cent since bottoming on Dec. 24 and added 5.3 per cent in the past five days with volume 1.45 times the 90-day average.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of customer success at Trading Central.
U.S.-listed large caps showing strong short-term price momentum