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Zacks.com featured highlights ConocoPhillips, Southwest Airlines, Reliance Steel & Aluminum, Avnet and Huntsman
Zacks Equity Research
8 min read

In This Article:

For Immediate Release

Chicago, IL – May 4, 2022 – Stocks in this week’s article are ConocoPhillips COP, Southwest Airlines Co. LUV, Reliance Steel & Aluminum Co. RS, Avnet, Inc. AVT and Huntsman Corp. HUN.

5 Top Stocks to Make the Most of Relative Price Strength

Reeling under a plethora of headwinds, the S&P 500 extended its bearish run in April. It lost 8.8% of its value in a month that is normally considered strong for equities. Year to date, the market has experienced wild action and volatility. After robust returns during 2021, Wall Street has experienced a slowdown in 2022, with the index losing around 14% so far.

Despite raising the benchmark interest rate by 25 basis points in March, for the first time in three years, several measures of inflation have shown no signs of mitigating and remain elevated at their highest in four decades.

In addition to the stubborn inflationary pressure due to lingering global supply-chain disruptions, a more than hawkish Fed, the prolonged war between Russia and Ukraine and the resurgence of COVID-19 infections and lockdowns in China have raised serious questions about a near-term recession in the United States as well as the global economy. Even worse, both IMF and World Bank reduced their projections for the 2022 global economic growth rate in April.

It is likely that the mayhem will continue in the near term amid growing concerns of rising interest rates and economic sluggishness.

For investors who might want to stay exposed to the market during this uncertain phase, it is time to focus on good investment opportunities. One of the ways such potential plays could be identified is to look for signs of relative price strength.

Relative Price Strength Strategy

Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is essential to check whether its price performance exceeds its peers or the industry average.

Upon such comparison, if we find that a stock is unable to match up to wider sectoral growth despite having impressive earnings momentum or valuation multiples, it may be better to avoid it.

However, those outperforming their respective industries or benchmarks should be included in your portfolio since they have a higher chance of securing significant returns. Picking a stock that outperforms its peers ensures that you have a winning option on your hands.

Then again, it is imperative that you determine whether or not an investment has relevant upside potential when considering stocks with significant relative price strength. Stocks delivering better than the S&P 500 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.

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