Wall Street has been in the grip of volatility since April after a good rally in March. Overall, U.S. stock markets have been reeling under severe volatility since the beginning of 2022 barring the second half of March.
On May 4, the Fed hiked the benchmark interest rate by 50 basis points effective immediately. Notably, the Fed raised the lending rate by 25 basis points in its March FOMC, for the first time in more than three years. With this decision, the Fed fund rate has increased to 0.75-1%.
Fed Chairman Jerome Powell hinted that a 50-basis-point rate hike is likely to come in the next two FOMC meetings. At present, the CME FedWatch data indicates that the Fed funds rate to reach 2.75-3% by the end of 2022.
Moreover, the central bank decided to shrink the size of its $9 trillion balance sheet in a phased manner effective Jun 1. Initially, the central bank will roll off $30 billion of Treasury Notes and $17.5 billion in mortgage-backed securities per month. After three months, the size of the Treasury Note will increase to $60 billion and mortgage-backed securities will increase to $35 billion per month.
On May 4, the yield on the benchmark 10-Year U.S. Treasury Note touched 3.106%, its highest since 2018. It finally closed at 3.04%. The yield on the 30-Year U.S. Treasury Bond closed at 3.126%.
Market participants are concerned that if these measures fail to contain inflation, Fed will be compelled to raise the interest rate by 75 basis points. The global supply-chain system is showing no signs of restoration. The lingering war between Russia and Ukraine and the resurgence of COVID-19 infections in China significantly delayed the process.
Investors are concerned that higher input costs and labor shortages will raise the price of the final products. A higher interest rate regime will also result in lower business spending. Finally, mounting inflation will force Americans to cut personal expenditures. The end result may lead to economic recession.
At this juncture, a handful of stocks have shown price strength recently. Five of them are — CONSOL Energy Inc. CEIX, Alpha Metallurgical Resources Inc. AMR, International Seaways Inc. INSW, Carlisle Companies Inc. CSL and Applied Industrial Technologies Inc. AIT.
We have primarily targeted stocks that have freshly been on a bull run. Stocks seeing price strength recently have a high chance of carrying the momentum forward.
If a stock is continuously witnessing an uptrend, there must be a solid reason or it would have probably crashed. So, looking at stocks capable of beating the benchmark that they have set for themselves seems rational.
However, recent price strength alone cannot create magic. Therefore, other relevant parameters are needed to create a successful investment strategy.
Here’s how you should create the screen to shortlist the current as well as the potential winners.
Percentage Change in Price (4 Weeks) greater than zero: This criterion shows that the stock has moved higher in the last four weeks.
Percentage Change Price (12 Weeks) greater than 10: This indicates that the stock has seen momentum over the last three months. This lowers the risk of choosing stocks that may have drawn attention due to the overwhelming performance of the overall market in a very short period.
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the stock’s future performance.
Current Price greater than 5: The stocks must all be trading at a minimum of $5.
Current Price/ 52-Week High-Low Range more than 85%: This criterion filters stocks that are trading near their respective 52-week highs. It indicates that these are strong enough in terms of price.
Just these few criteria narrowed down the search from over 7,700 stocks to just 13.
Let’s discuss five out of this 13 stocks:
CONSOL Energy produces and exports bituminous coal in the United States. CEIX operates through the PAMC, CONSOL Marine Terminal, and Other segments. CONSOL Energy engages in the mining, preparation, and marketing of bituminous coal to power generators, industrial end-users, and metallurgical end-users, provision of coal export terminal services, and development of the Itmann Mine and the Greenfield reserves.
The stock price of CONSOL Energy has soared 37.3% in the past four weeks. CEIX has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 45% over the last 60 days.
Alpha Metallurgical Resources is a mining company that produces, processes, and sells met and thermal coal in Virginia and West Virginia. AMR supplies metallurgical products to the steel industry.
The stock price of Alpha Metallurgical Resources has jumped 31.6% in the past four weeks. AMR has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 43.9% over the last 60 days.
International Seaways is a tanker company. INSW provides energy transportation services for crude oil and petroleum products. International Seaways owns and operates a fleet includng ULCC, eight VLCCs, eight Aframaxes/LR2s, 12 Panamaxes/LR1s and 20 MR tankers.
The stock price of International Seaways has climbed 12.5% in the past four weeks. INSW has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved more than 100% over the last 30 days.
Carlisle is set to gain from strength in the U.S. reroofing end markets along with acquired assets. Strength in the medical technologies business and recovery in the commercial aerospace business are likely to drive CSL’s performance.
Carlisle’s focus on product launches and an improved outlook for industrial capital spending should be beneficial. For 2022, Carlisle expects revenues to grow more than 30% year over year. CSL’s shareholder-friendly policies are likely to act as tailwinds.
The stock price of Carlisle has surged 11.5% in the past four weeks. CSL has an expected earnings growth rate of 68.9% for the current year. The Zacks Consensus Estimate for current-year earnings improved 11% over the last 7 days.
Applied Industrial Technologies is a distributor of value-added industrial products including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies.
AIT is also well known in the market for its engineering, design and systems integration services. Moreover, Applied Industrial Technologies’ inventory management solutions and maintenance training services boost the value of end-users in the market.
The stock price of Applied Industrial Technologies has advanced 6.5% in the past four weeks. AIT has an expected earnings growth rate of 31.7% for the current year (ending June 2022). The Zacks Consensus Estimate for current-year earnings improved 5.9% over the last 7 days.
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.
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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.
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