Even though I am a technical analyst, I love lists of stocks selected by a fundamental or a quantitative filter.
Why? There are thousands of securities one can consider to invest in, so cutting that big universe down to size is a good idea. But fundamentals and quantitative techniques are just two methods of winnowing down a list. Technical analysis has been around since the 1880s in the U.S. and can be used to further filter stocks to create a concentrated picture.
RBC Capital Markets, a division of Royal Bank of Canada, put together a list of 25 stocks with the greatest improvement in earnings outlook relative to price this year. The analysts looked at the change in a stock's forward earnings estimates vs. its year-to-date stock price change.
Taking a few technical indicators, I have cut the RBC Capital list down to five names that also show a positive trend or a good base and accumulation (buying).
Check out which stocks are buy worthy. RBC Capital's list used stock price returns as of Aug. 19, 2016.
Year-to-date change of forward EPS estimates: 162.1%
Year-to-date price change: -16.2%
In this chart of Newell Brands' (NWL - Get Report) , we can see that prices are trending higher above the rising 50-day moving average line and the rising 200-day average line. The daily on-balance-volume, or OBV, line has been rising from a January low and tells us that buyers have been aggressive with more shares of Newell traded when the stock closes higher on the day. Buying a stock when it is up on the day is a sign that investors are willing to "pay up" to buy this name -- a sign of accumulation.
There are no bearish divergences now between the price action and the momentum study to suggest a pullback from current levels. If prices dip, there is good chart support in the $50-to0$48 area.
Year-to-date change of forward EPS estimates: 81.9%
Year-to-date price change: 20.5%
In this daily chart of Broadcom (AVGO - Get Report) , we can see that Broadcom has been in an uptrend the past 12 months. Prices are above the rising 50-day and 200-day moving averages. The OBV line has been rising along with prices and confirms the price advance. Momentum has been slowing in recent weeks, but the price pattern does not reflect a top pattern, so any temporary retreat toward support around $165 is likely to be a buying opportunity.
Year-to-date change of forward EPS estimates: 45.5%
Year-to-date price change: 4.6%
In this daily chart of Autodesk (ADSK - Get Report) , we can see a broad sideways trading range the past year, but prices are at the top of the range. Prices are above the rising 50-day and 200-day averages. The OBV line has been rising since February and hardly dips when prices pull back, a sign that longs are not getting out of the stock. Also, the OBV line has made new highs ahead of the price action, which is bullish as volume tends to precede price in many instances.
Autodesk can be purchased here, and investors should add on strength.
Year-to-date change of forward EPS estimates: 38.2%
Year-to-date price change: 10.8%
In this chart of Ball (BLL - Get Report) , we see a gradual rally and then a big gap to the upside earlier this month. Prices are above the rising 50-day and 200-day moving averages. The OBV line has been improving the past 12 months, telling us that investors have steadily accumulated long positions. There are no bearish divergences at this time between the strong price action and the momentum indicator.
The heavy level of trading volume in July before the upside breakout suggests that Ball is not likely to pull back much so traders, and investors looking to buy Ball should step up and buy at current levels as a dip is probably not in the cards.
Year-to-date change of forward EPS estimates: 14.8%
Year-to-date price change: -8.8%
In this one-year chart of Xerox (XRX - Get Report) , we see a sideways market. How does Xerox make the cut? Simple: While Xerox is not in an uptrend at this moment in time, I want you to look at the OBV line, which has been rising since January. When we see that dips to and below $9 have been bought along with a rising OBV line, we become very bullish. This is the picture of a stock that investors have been buying steadily. There is no need to aggressively push the stock up to buy the shares they want, so the OBV line rises while prices go sideways.
I would take a starter position in Xerox here and wait for a rally over $10.50 before becoming more aggressive.