For the first time this year, Wall Street is facing difficulties in August. After witnessing a smooth rally in the first seven months of 2023, U.S. stock markets are now facing volatility. Market participants remain uncertain as to what level the Fed will continue to hike its interest rate.
Fed’s July FOMC meeting minutes clearly indicated that a majority of officials were in favor of pursuing the rate hike cycle. This is because the inflation rate remains well above the central bank’s target level supported by resiliency in the labor market and consumer spending.
On Aug 1, Fitch Ratings downgraded the U.S long-term foreign currency issuer default rating to AA+ from AAA. On Aug 15, Fitch Ratings warned that it might downgrade the ratings of more than a dozen U.S. heavyweight banks in the near future. Fitch added that another one-notch downgrade of the banking sector’s rating from AA- to A+ will compel it to reevaluate the ratings of all 70 U.S., banks that it covers for a possible downgrade.
On Aug 8, Moody’s Investors Service cut the rating of 10 small and mid-sized U.S. banks by a single notch. The rating agency put six big banks under review for a potential downgrade. Moody’s also changed its rating outlook to negative for 11 banks. On Aug 21, S&P Global cut credit ratings on some regional lenders with high commercial real estate exposure.
As a result, all three major stock indexes are in negative territory month to date. Despite volatility, a handful of stocks have shown price strength. We have selected five stocks likely to gain in the near term on the back of a favorable Zacks Rank. These companies are — Carrols Restaurant Group Inc. TAST, LSI Industries Inc. LYTS, Karat Packaging Inc. KRT, Modine Manufacturing Co. MOD and Perdoceo Education Corp. PRDO.
Here’s How We Arrived at the Picks
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.
Screening Parameters:
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.
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 15.
Let’s discuss five out of these 15 stocks:
Carrols Restaurant Group operates as a restaurant company in the United States. It operates as a Burger King and Popeyes franchisee. TAST is the largest BURGER KING franchisee in the United States, with over 800 restaurants. TAST has operated BURGER KING restaurants since 1976.
The stock price of Carrols Restaurant Group has jumped 28.8% in the past four weeks. It has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 30 days.
LSI Industries is an Image Solutions company, combining integrated design, manufacturing, & technology to supply its own high-quality lighting fixtures and graphics elements for applications in the retail, specialty niche, and commercial markets. LYTS has two segments, Lighting and Display Solutions. LYTS operates in the United States, Canada, Mexico, Australia, and Latin America.
The stock price of LSI Industries has climbed 28.4% in the past four weeks. It has an expected earnings growth rate of 27.3% for the current fiscal year ending June 2024. The Zacks Consensus Estimate for current-year earnings improved 19.1% over the last seven days.
Karat Packaging is a specialty distributor and manufacturer of disposable foodservice products and related items. KRT’s products include food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. KRT also offers customized solutions, including new product development and design, printing, and logistics services.
The stock price of Karat Packaging has surged 27.5% in the past four weeks. It has an expected earnings growth rate of 40.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 28% over the last 30 days.
Modine Manufacturing provides engineered heat-transfer systems and heat-transfer components for use in on- and off-highway original equipment manufacturer vehicular applications. MOD operates through Climate Solutions and Performance Technologies segments.
The stock price of Modine Manufacturing has rallied 25% in the past four weeks. MOD has an expected earnings growth rate of 39.5% for the current year (ending March 2024). The Zacks Consensus Estimate for current-year earnings has improved 15.7% over the last 30 days.
Perdoceo Education provides educational services. PRDO offers bachelor’s, associate and non-degree programs in information technologies, visual communication and design technologies, business studies and culinary arts.
The stock price of Perdoceo Education has advanced 22.5% in the past four weeks. PRDO has an expected earnings growth rate of 15.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.2% over the last 30 days.
Carrols Restaurant Group, Inc. (TAST): Free Stock Analysis Report
Modine Manufacturing Company (MOD): Free Stock Analysis Report
LSI Industries Inc. (LYTS): Free Stock Analysis Report
Perdoceo Education Corporation (PRDO): Free Stock Analysis Report
Karat Packaging Inc. (KRT): Free Stock Analysis Report
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This article originally appeared on Zacks
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