Bet on 5 Top-Ranked Stocks With Rising P/E


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Betting on bargain stocks that have a low price-to-earnings (P/E) ratio is a convenient and common investment approach. The perception is that the lower the P/E, the higher is the value of the stock. This inference is drawn on the simple logic that a stock’s current market price does not justify (is not equivalent to) its higher earnings and therefore has room to run.

Naturally, there are very few investors who pay attention to stocks with an increasing P/E. But this often-overlooked trend can prove useful in finding great stocks. Let’s dig a little deeper.

Why Stocks with Rising P/E Can be Equally Hit

Investors should note that stock prices move in line with earnings performance. If earnings come in stronger, the price of a stock shoots up. Solid quarterly earnings and the forward guidance in turn boost earnings forecasts, leading to stronger demand for the stock and an uptrend in its price.


So, if share price is rising steadily, it means that investors are assured of the stock’s fundamental strength and expect some strong positives out of it. Also, studies have revealed that stocks have seen their P/E ratios jump over 100% from their breakout point in the cycle. So, if you can pick stocks early in their breakout cycle, you can end up seeing considerable gains.

The Winning Strategy

In order to shortlist stocks that are exhibiting an increasing P/E, we chose the following as our primary screening parameters.

EPS growth estimate for the current year is greater than or equal to last year’s actual growth


Percentage change in last year EPS should be greater than or equal zero

(These two criteria point to flat earnings or a growth trend over the years.)

Percentage change in price over four weeks greater than the percentage change in price over 12 weeks

Percentage change in price over 12 weeks greater than percentage change in price over 24 weeks

(These two criteria show that price of the stock is increasing consistently ! over the said timeframes.)

Percentage price change for four weeks relative to the S&P 500 greater than the percentage price change for 12 weeks relative to the S&P 500


Percentage price change for 12 weeks relative to the S&P 500 greater than the percentage price change for 24 weeks relative to the S&P 500

(Here, the case for consistent price gains gets even stronger as it displays percentage price changes relative to the S&P 500.)

Percentage price change for 12 weeks is 20% higher than or equal to the percentage price change for 24 weeks, but it should not exceed 100%

(A 20% increase in the price of a stock from the breakout point gives cues of an impending uptrend. But a jump of over 100% indicates that there is limited scope for further upside and that the stock might be due for a reversal.).


In addition, we place a few other criteria that lead us to some likely outperformers.

Zacks Rank less than or equal to 2:Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.

Average 20-day Volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 37.

Here are five out of those 37 stocks:

SunOpta Inc. (STKL Quick QuoteSTKL ) ): The company is an operator of high-growth ethical businesses, focusing on integrated business models in the natural and organic food, supplements and health and beauty markets. The company carries a Zacks Rank #2.


RentACenter Inc. (RCII Quick QuoteRCII ) ): This Zacks Rank #1 company is the largest rent-to-own operator in the United States, offering durable goods such as consumer electronics, appliances, computers, furniture and accessories. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sterling Construction Company Inc (STRL Quick QuoteSTRL ) : This Zacks Rank #2 leading heavy civi! l constru! ction company specializes in building and reconstruction of transportation and water infrastructure projects in the United States.


Vertex Pharmaceuticals Incorporated (VRTX Quick QuoteVRTX ) : The company is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases. The company’s main area of focus is cystic fibrosis. The stock carries a Zacks Rank #2.

Alto Ingredients Inc. (ALTO Quick QuoteALTO ) : The Zacks Rank #2 company is a producer of specialty alcohols and essential ingredients.

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.

Click here to sign up for a free trial to the Research Wizard today.

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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