7 Stocks With Relative Strength to Beat the Market
Even though Mr. Market has been selling off right now, it's not exactly the meltdown that it seems. The S&P 500 has managed to hold above support so far, a factor that points more to a healthy pullback in the broad market than an outright selloff. Uncertainty is still high right now -- so it pays to be tactical with your portfolio in April.
With trading conditions still looking murky, relative strength is still one of the best tools we have to identify stocks that are likely to beat the market this year. So how does it work?
Put simply, relative strength is a ratio of a stock's price to a broad market index. The ratio itself isn't important -- instead, it's the trend of the ratio over time that's investible. According to academic research, relative strength is a statistically viable strategy over a one-to-ten month time horizon; that's the timeframe we're focusing on today.
To find the seven names that made this list, I used a quantitative screen to rank the top S&P 500 names with relative strength over several timeframes, then weeded out the more attractive names using technical analysis .
The result is a set of relative strength trades that should outperform as we push through 2012. Here's everything you need to know.
1-Month Relative Strength: 11.99%
Nearest Resistance: $125
Nearest Support: $115
First up is $11 billion biopharma firm Regeneron Pharmaceuticals (REGN) , a company that develops treatments for inflammation and eye diseases. Regeneron has been on a tear this year, climbing more than 118% since the first trading day of January -- and shares have posted relative performance of 12% in the last month. The firm's Eylea drug is the major catalyst for REGN's rally; the macular degeneration drug is expected to bring in as much as $300 million in 2012, double previous estimates.
REGN has been consolidating for most of the last month, trading sideways as shares bleed off some overbought momentum. That should help prime shares for their next leg up. I'd recommend sitting on the sidelines until REGN pushes above resistance at $125.
Regeneron shows up on a recent list of 10 Stocks That Boosted First-Quarter Mutual Fund Returns . Fossil
1-Month Relative Strength: 5.78%
Nearest Resistance: $140
Nearest Support: $130
Fashion accessory stock Fossil(FOSL) is another name that's making a strong run in 2012 -- shares have rallied more than 74% so far this year. Breakneck sales growth has been the biggest reason behind this stock's upward momentum. On the technical side of things, FOSL's addition to the S&P 500 should spur institutional buying by funds that are required to mirror the big index's construction.