September is historically known as Wall Street’s worst-performing month and this year is no exception. Market participants were mulling over the end of the ongoing rate hike cycle and the relaxation of restrictive monetary policies. However, this month’s post-FOMC meeting statement by Jerome Powell has dampened investors’ sentiments.

Although the Fed paused its rate hike in the September FOMC meeting, the current dot-plot has shown a strong likelihood of one more hike of 25 basis points in 2023. That will take the terminal interest rate of this hiking cycle to 5.6%, well above the 5.1% forecast in June. Notably, the current range of the Fed fund rate is at the highest level since March 2001.

More importantly, the central bank said it would keep interest rates higher for a longer time period. The new projection showed two maximum rate cuts in 2024 instead of four projected in June. The first cut in interest rate is not expected before September 2024. A higher interest rate regime for a longer period is detrimental to investment in equities.

Despite severe 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 — Virco Mfg. Corp. VIRC, Lifeway Foods Inc. LWAY, Vistra Corp. VST, Build-A-Bear Workshop Inc. BBW and Consolidated Water Co. Ltd. CWCO.

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 12.

Let’s discuss five out of these 12 stocks:

Virco Mfg. designs, produces, and distributes quality furniture for the contract and education markets worldwide. Examples of facilities served by VIRC include public and private schools, colleges and universities, convention centers, federal and state institutions, churches and other businesses.

VIRC also sell to wholesalers, distributors, retailers and catalog retailers. In order to divide the workload into manageable amounts, VIRC has divided the sales force into two groups: Education and Commercial.

The stock price of Virco Mfg. has soared 45.9% in the past four weeks. It has an expected earnings growth rate of 9.8% for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 38.8% over the past 30 days.

Lifeway Foods produces and markets probiotic-based products in the United States and internationally. LWAY’s primary product is drinkable kefir, a cultured dairy product in various organic and non-organic sizes, flavors, and types. LWAY also offers European-style soft cheeses; cream and other products, ProBugs, a line of kefir products designed for children, drinkable yogurt; and freshly made butter and sour cream.

LWAY sells its products under the Lifeway, Glen Oaks Farms, and Fresh Made brand names, as well as under private labels on behalf of customers primarily through direct sales force, brokers, and distributors.

The stock price of Lifeway Foods has climbed 12.7% 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 76.5% over the past 30 days.

Vistra operates as an integrated retail electricity and power generation company. VST operates through six segments — Retail, Texas, East, West, Sunset, and Asset Closure. VST is involved in electricity generation, wholesale energy purchases and sales, commodity risk management, fuel production, and fuel logistics management activities. VST retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia.

The stock price of Vistra has risen 10.3% in the past four weeks. It has an expected earnings growth rate of 27.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.8% over the past seven days.

Build-A-Bear Workshop operates as a multi-channel retailer of plush animals and related products. Build-A-Bear Workshop operates through three segments: Direct-to-Consumer, International Franchising, and Commercial. BBW operates its stores under the Build-A-Bear Workshop brand name and sells products through its e-commerce sites.

The stock price of Build-A-Bear Workshop has advanced 10.1% in the past four weeks. It has an expected earnings growth rate of 16.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the past seven days.

Consolidated Water currently utilizes the most advanced technology to convert seawater to potable water and meet customer needs. CWCO is expanding operations via acquisitions and organic projects. The acquisition of full ownership of PERC and the return of tourism to the Cayman Islands are expected to drive earnings. CWCO has enough liquidity to address its short-term debt obligations.

The stock price of Consolidated Water has gained 8.9% 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 2.1% over the past 30 days.
Lifeway Foods, Inc. (LWAY): Free Stock Analysis Report

Build-A-Bear Workshop, Inc. (BBW): Free Stock Analysis Report

Virco Manufacturing Corporation (VIRC): Free Stock Analysis Report

Consolidated Water Co. Ltd. (CWCO): Free Stock Analysis Report

Vistra Corp. (VST): Free Stock Analysis Report

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