Over the past four weeks, the U.S. markets have been rallying on the back of positive corporate earnings and a belief by some investors that the markets may have sold off too much. In the past month, the Standard & Poor’s 500 index is up 8.4 percent, and the Dow Jones industrial average is up 9 percent off their September lows. Last week’s Federal Reserve meeting put the possibility of a December rate hike firmly on the agenda — a move that encouraged investors to believe that the U.S. economy is on sure footing.
The screen. We used the Recognia Strategy Builder to search for U.S.-traded stocks that have rallied over the past month and show signs of continuing strength.
We began by setting a minimum market capitalization threshold of $10 billion to focus on larger, more-established companies in the market. Next, we looked for companies that have moved higher in the past four weeks by at least as much as the broader market; that is, at least 8.4 percent.
We also sought stocks that have moved higher on significant volume. We screened for stocks that have an average daily volume over the past 90 days of at least 500,000 shares. In addition, to look for stocks with growing investor interest, we employed a trading criterion: 10-day versus 90-day average volume. We sought companies whose 10-day average volume is 110 percent or more of the average volume over the past 90 days.
Finally, in order to pick stocks with the possibility of moving faster than the broader market, we selected stocks with a beta of +1.1 or greater. Beta measures the price correlation of a security compared to the entire market. Stocks with beta of more than +1 are more volatile than the market, but move in the same direction.
KLA-Tencor Corp. (ticker: KLAC). Among the highest performing stocks on our list is semiconductor equipment manufacturer KLA-Tencor Corp. KLA has had an interesting month with an earnings release on Oct. 21 that handily beat analysts’ expectations. Coincident with this good news, the company announced a proposed merger with rival LAM Research Corp. (LRCX) to create an industry giant in the semiconductor equipment space. The result is a stock whose price is up 33 percent in the past month, with triple the typical daily volume experienced over the past 10 days.
General Electric Co. (GE). Blue-chip bellwether General Electric makes our list with its stock up 16.5 percent over the past four weeks. With a breadth of businesses spanning many sectors including aviation, transportation and health care, GE is positioned to take advantage of a strengthening U.S. economy. The stock has seen above-average volume in the past 10 days, with its 10-day to 90-day volume ratio at 1.89.
Microsoft Corp. (MSFT). Microsoft is the largest company on our list, with a market capitalization in excess of $430 billion. On Oct. 22, Microsoft announced third-quarter results that beat analysts’ expectations on earnings by a healthy 14 percent. This news propelled the stock significantly higher — currently sitting 19.6 percent above the price four weeks ago. This move higher has occurred on significant volume, with the 90-day average daily volume now at more than 34 million shares and the 10-day to 90-day volume ratio at 1.44, showing the above-average interest in the stock over the past 10 days.
Amazon.com (AMZN). Online retailer Amazon.com also makes our list with a stock price up more than 20 percent in the past four weeks. Similar to Microsoft, Amazon also announced strong third-quarter results in October, beating analysts’ estimates for both earnings and revenue. The stock responded by gapping up 9 percent the next trading day. Amazon’s Web Services division experienced particularly strong growth, up 78 percent from last year.
Historical performance. Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked over a five-year period. Using a three-month buy-and-hold strategy, the screen described had a 12.8 percent annualized return compared to 9.7 percent for Dow Jones industrial average, and 11.9 percent for the S&P 500 index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
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4 U.S. Stocks That Are On the Rebound originally appeared on usnews.com