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For Immediate Release
Chicago, IL – September 17, 2024 – Stocks in this week’s article are JD.com, Inc. JD, ZIM Integrated Shipping Services Ltd. ZIM, Pampa Energia S.A. PAM, Hamilton Insurance Group, Ltd. HG and Empire State Realty Trust, Inc. ESRT.
Tap These 5 Bargain Stocks with Impressive EV-to-EBITDA Ratios
Price-to-earnings (P/E), given its inherent simplicity, is the most commonly used metric in the value-investing world. It is preferred by many investors while handpicking stocks trading at a bargain. However, even this straightforward, broadly used valuation metric has a few downsides.
Although P/E enjoys great popularity among value investors, a less-used and more complicated metric called EV-to-EBITDA is sometimes viewed as a better alternative. EV-to-EBITDA gives the true picture of a company’s valuation and earnings potential. It has a more comprehensive approach to valuation.
JD.com, Inc., ZIM Integrated Shipping Services Ltd., Pampa Energia S.A., Hamilton Insurance Group, Ltd. and Empire State Realty Trust, Inc. are some stocks with attractive EV-to-EBITDA ratios.
Here’s Why EV-to-EBITDA Is a Better Option
Also referred to as enterprise multiple, EV-to-EBITDA is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company’s market capitalization, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company. EBITDA, the other element, gives a clearer picture of a company’s profitability by removing the impact of non-cash expenses like depreciation and amortization that dampen net earnings. It is also often used as a proxy for cash flows.
Typically, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate that a stock is undervalued. Unlike the P/E ratio, EV-to-EBITDA takes debt on a company’s balance sheet into account. For this reason, it is typically used to value acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
P/E can’t be used to value a loss-making firm. A firm’s earnings are also subject to accounting estimates and management manipulation. In contrast, EV-to-EBITDA is harder to manipulate and can be used to value companies that have negative net earnings but are positive on the EBITDA front. EV-to-EBITDA is also a useful tool in measuring the value of firms that are highly leveraged and have a high degree of depreciation. It can also be used to compare companies with different levels of debt.
But EV-to-EBITDA has its limitations, too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Thus, instead of just relying on EV-to-EBITDA, you can club it with the other major ratios, such as price-to-book (P/B), P/E and price-to-sales (P/S), to achieve the desired results.
Here are our five picks out of the 13 stocks that passed the screen:
JD.com operates as an online direct sales company in China. This Zacks Rank #1 stock has a Value Score of A.
JD.com has an expected earnings growth rate of 27.2% for 2024. The Zacks Consensus Estimate for JD's 2024 earnings has been revised 16.8% upward over the past 60 days.
ZIM Integrated Shipping is a leading global container liner shipping company. This Zacks Rank #1 stock has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
ZIM has an expected year-over-year earnings growth rate of 314.4% for 2024. The Zacks Consensus Estimate for ZIM’s 2024 earnings has been revised 592.4% upward over the last 60 days.
Pampa Energia is a leading independent energy-integrated company in Argentina. This Zacks Rank #2 stock has a Value Score of A.
Pampa Energia has an expected year-over-year earnings growth rate of 73.5% for 2024. PAM beat the Zacks Consensus Estimate in three of the last four quarters. In this time frame, it has delivered an earnings surprise of roughly 62%, on average.
Hamilton Insurance Group is a specialty insurance and reinsurance company that underwrites risks worldwide. This Zacks Rank #2 stock has a Value Score of A.
Hamilton Insurance Group has an expected earnings growth rate of 72.5% for 2024. The consensus estimate for HG's 2024 earnings has been revised 22.7% upward over the past 60 days.
Empire State Realty Trust is a leading real estate investment trust. This Zacks Rank #2 stock has a Value Score of B.
Empire State Realty Trust has an expected year-over-year earnings growth rate of 1.1% for 2024. The Zacks Consensus Estimate for ESRT’s 2024 earnings has been revised 1.1% upward over the past 60 days.
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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2336292/tap-these-5-bargain-stocks-with-impressive-ev-to-ebitda-ratio
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://www.zacks.com/
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Zacks Investment Research
Pampa Energia S.A.’s PAM strategic investments continue to maintain asset quality and help expand its generation portfolio. The company benefits from its efforts to expand its operations in the generation, transmission and distribution of electricity in Argentina. Given its strong growth, PAM makes for a solid investment option in the utility sector.
Let’s focus on the factors that make this Zacks Rank #2 (Buy) company a strong investment option at the moment.
PAM’s Growth Projections & Surprise History
The Zacks Consensus Estimate for Pampa Energia’s 2024 earnings per share (EPS) has moved up 20.6% to $9.54 in the past 60 days.
The Zacks Consensus Estimate for 2024 sales is pinned at $1.88 billion, indicating year-over-year growth of 8.5%.
The company delivered an average earnings surprise of 62% in the past four quarters.
PAM’s Return on Equity (ROE)
ROE indicates how efficiently a company has been utilizing its funds to generate higher returns. Currently, Pampa Energia’s ROE is 12.59%, higher than the industry’s average of 10.34%. This indicates that the company has been utilizing its shareholders' funds more constructively (to generate income) than its peers in the electric power utility industry.
PAM’s Debt Position
Currently, PAM’s total debt to capital is 34.73%, better than the industry’s average of 60.86%.
The time-to-interest earned ratio at the end of the second quarter of 2024 was 2.8. The ratio, being greater than one, reflects the company’s ability to meet future interest obligations without difficulties.
PAM’s Liquidity
Its current ratio of 2.33 is better than the industry’s average of 0.85. A current ratio greater than one indicates that the company has enough short-term assets to liquidate for covering all short-term liabilities, if necessary.
PAM’s Focus on Clean Power Generation
Since 2018, Pampa Energia has been actively developing wind energy, establishing itself as one of Argentina’s leading renewable energy companies. It continues to add more renewable power through inorganic growth and development of MAT ER projects. During the second quarter of 2024, the company’s net power generation was 5,067 gigawatt-hour, including hydro, wind and thermal.
Its PEPE VI project is expected to add 140 megawatts (MW) of wind power. The total completion is expected by October 2024. PAM’s investment of more than $250 million should bring its total installed wind power capacity to 427 MW, positioning it as one of the country’s leading renewable power producers.
PAM’s Stock Price Performance
In the past three months, Pampa Energia’s shares have risen 31% compared with the industry’s 12% growth.
Other Stocks to Consider
A few other top-ranked stocks from the same industry are DTE Energy DTE, Evergy EVRG and Xcel Energy XEL, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DTE’s long-term (three to five years) earnings growth rate is 8.14%. The Zacks Consensus Estimate for 2024 EPS implies a year-over-year increase of 16.9%.
EVRG’s long-term earnings growth rate is 5.85%. The Zacks Consensus Estimate for 2024 EPS implies year-over-year growth of 8.8%.
XEL’s long-term earnings growth rate is 6.39%. The company delivered an average earnings surprise of 0.7% in the past four quarters.
Zacks Investment Research
Container liner shipping company ZIM Integrated Shipping Services Ltd. ZIM continues to benefit from upbeat global trade and container shipping demand. ZIM shares have performed exceedingly well on the bourses, gaining 91.9% over the past six months, handily outperforming its industry and other industry players like Seanergy Maritime Holdings SHIP and Frontline Plc FRO.
Six-Month Share Price Comparison
Technical indicators suggest continued strong performance for ZIM. The stock trades above its 50-day moving average, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment, and confidence in ZIM’s financial health and prospects.
50-Day Moving Average of ZIM Stock
In view of the surge in ZIM, investors must be wondering if they should lock in profits or buy the stock for more upside potential. Let’s delve into the company’s fundamentals to determine the best course of action.
Red Sea Tensions Boost Freight Rates: A Tailwind for ZIM
ZIM Integrated Shipping, based in Israel, provides service to the East Mediterranean and Israeli ports. The attacks by Yemen’s Houthi militants on vessels in the Red Sea have disrupted maritime trade. As a result, many shipping companies, including ZIM, have hit the pause button as far as transit through this route is concerned and adopted the longer and costlier route around the Cape of Good Hope in South Africa rather than through the Suez Canal. Reduced container availability due to the Red Sea tensions has resulted in a rise in freight costs.
Lower capacity has boosted earnings. Rates are likely to remain high for quite some time, which may translate into further upside potential for shipping stocks like ZIM.
Strong Q2 Results & Upbeat Outlook for ZIM
Last month, ZIM reported better-than-expected earnings per share and revenues for the second quarter of 2024. Revenues increased 48% year over year, driven by an increase in freight rates and carried volume.
ZIM raised its guidance for full-year 2024 adjusted earnings before interest, taxes, depreciation, and amortization or EBITDA. The shipping company expects the metric to be in the range of $2.6-$3 billion. Previously, ZIM anticipated to generate adjusted EBITDA between $1.15 and $1.55 billion.
Additionally, the board declared a cash dividend of approximately $112 million, or 93 cents per ordinary share, sticking to its policy of returning 30% of net income to its shareholders. The shipping company’s quarterly dividend quadrupled quarter over quarter. ZIM’s shareholder-friendly approach throws light on its financial prosperity. The shipping company’s high dividend yield is a huge positive for income-seeking investors. This highlights confidence in its cash flow and prospects.
Further Positives Propelling ZIM Stock
The shipping company’s asset-light model, which means that the focus is more on leasing rather than owning vessels, allows it to adjust capacity rapidly in response to market changes. This practice helps the company to boost profits during periods of high demand.
ZIM’s focus on niche markets and high-margin trade routes helps it avoid the crowded, low-margin segments, thereby maintaining strong pricing power. This, too, aids profitability. The shipping company’s operational efficiency is being aided by investments in digitalization and innovative technologies. This not only boosts ZIM’s bottom line but allows it to take advantage of emerging trends, such as the increased demand for eco-friendly shipping solutions.
Attractive Valuation Adds to ZIM’s Luster
From a valuation standpoint, ZIM stock is trading at a forward 12-month sales multiple of 0.35, lower than the industry as well as the 3-year median. The stock, having a Value Score of A, seems to be undervalued now.
Earnings Estimate Revision Favoring ZIM Stock
Reflecting the positive sentiment around ZIM, the Zacks Consensus Estimate for earnings per share for the remaining quarters of 2024, as well as the full year, has seen upward revisions.
The company’s long-term (3-5 years) earnings growth rate is an impressive 47.4%, higher than its industry’s 23.3%.
Final Verdict
Given the positives surrounding the ZIM stock, as highlighted throughout the write-up, we believe that it’s not too late for investors looking to add ZIM stock to their portfolios for healthy returns. They can still invest in the stock, considering that it currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks Investment Research
Price-to-earnings (P/E), given its inherent simplicity, is the most commonly used metric in the value-investing world. It is preferred by many investors while handpicking stocks trading at a bargain. However, even this straightforward, broadly used valuation metric has a few downsides.
Although P/E enjoys great popularity among value investors, a less-used and more complicated metric called EV-to-EBITDA is sometimes viewed as a better alternative. EV-to-EBITDA gives the true picture of a company’s valuation and earnings potential. It has a more comprehensive approach to valuation.
JD.com, Inc. JD, ZIM Integrated Shipping Services Ltd. ZIM, Pampa Energia S.A. PAM, Hamilton Insurance Group, Ltd. HG and Empire State Realty Trust, Inc. ESRT, are some stocks with attractive EV-to-EBITDA ratios.
Here’s Why EV-to-EBITDA is a Better Option
Also referred to as enterprise multiple, EV-to-EBITDA is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company’s market capitalization, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company. EBITDA, the other element, gives a clearer picture of a company’s profitability by removing the impact of non-cash expenses like depreciation and amortization that dampen net earnings. It is also often used as a proxy for cash flows.
Typically, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate that a stock is undervalued. Unlike the P/E ratio, EV-to-EBITDA takes debt on a company’s balance sheet into account. For this reason, it is typically used to value acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
P/E can’t be used to value a loss-making firm. A firm’s earnings are also subject to accounting estimates and management manipulation. In contrast, EV-to-EBITDA is harder to manipulate and can be used to value companies that have negative net earnings but are positive on the EBITDA front. EV-to-EBITDA is also a useful tool in measuring the value of firms that are highly leveraged and have a high degree of depreciation. It can also be used to compare companies with different levels of debt.
But EV-to-EBITDA has its limitations, too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Thus, instead of just relying on EV-to-EBITDA, you can club it with the other major ratios, such as price-to-book (P/B), P/E and price-to-sales (P/S), to achieve the desired results.
Screening Criteria
Here are the parameters to screen for bargain stocks:
EV-to-EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV-to-EBITDA ratio represents a cheaper valuation.
P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.
P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.
P/S less than X-Industry Median: The lower the P/S ratio, the more attractive the stock is, as investors will have to pay a smaller price for the same amount of sales generated by the company.
Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median.
Average 20-day Volume greater than or equal to 50,000: The addition of this metric ensures that shares can be traded easily.
Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.
Zacks Rank less than or equal to 2: It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.
Value Score of less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are our five picks out of the 13 stocks that passed the screen:
JD.com operates as an online direct sales company in China. This Zacks Rank #1 stock has a Value Score of A.
JD.com has an expected earnings growth rate of 27.2% for 2024. The Zacks Consensus Estimate for JD's 2024 earnings has been revised 16.8% upward over the past 60 days.
ZIM Integrated Shipping is a leading global container liner shipping company. This Zacks Rank #1 stock has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
ZIM has an expected year-over-year earnings growth rate of 314.4% for 2024. The Zacks Consensus Estimate for ZIM’s 2024 earnings has been revised 592.4% upward over the last 60 days.
Pampa Energia is a leading independent energy-integrated company in Argentina. This Zacks Rank #2 stock has a Value Score of A.
Pampa Energia has an expected year-over-year earnings growth rate of 73.5% for 2024. PAM beat the Zacks Consensus Estimate in three of the last four quarters. In this time frame, it has delivered an earnings surprise of roughly 62%, on average.
Hamilton Insurance Group is a specialty insurance and reinsurance company that underwrites risks worldwide. This Zacks Rank #2 stock has a Value Score of A.
Hamilton Insurance Group has an expected earnings growth rate of 72.5% for 2024. The consensus estimate for HG's 2024 earnings has been revised 22.7% upward over the past 60 days.
Empire State Realty Trust is a leading real estate investment trust. This Zacks Rank #2 stock has a Value Score of B.
Empire State Realty Trust has an expected year-over-year earnings growth rate of 1.1% for 2024. The Zacks Consensus Estimate for ESRT’s 2024 earnings has been revised 1.1% upward over the past 60 days.
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.
Zacks Investment Research
Market volatility cratered last week as stocks bounced back from one of their worst weeks of the year. With the Fed rates decision looming, we could see volatility pick up this week.
That could mean it’s a good time to look for stock with a low implied volatility percentile.
A lot of stock are showing a low implied volatility percentile.
Pfizer for example, is showing implied volatility of 21% compared to a twelve-month low of 18% and a twelve-month high of 34%.
Implied volatility percentile is one of the most common metrics used when trading options.
IV Percentile is a measure of implied volatility where current implied volatility is compared to the range of implied volatilities in this past.
This comparison is made on the same stock.
For example, Palantir’s IV percentile takes the current implied volatility and compares it to the past implied volatilities Palantir has had.
This is then made into a percentage ranging from 0-100%.
A percentage of zero would depict a stock is currently at the lowest level of implied volatility it has been during the lookback period.
In contrast, an IV percentile of 100% illustrates that the stock is trading at its highest level of implied volatility.
To get a true picture of stocks with a low implied volatility percentile, we can use the Stock Screener.
Using the Stock Screener to Find Low Volatility Stocks
Using the Stock Screener, we can set the following filters to find stocks with low implied volatility percentile.
This screener gives us the following stocks ranked from lowest IV Percentile to highest:
Fidelity National Information Services
Here is the full list:
How To Use IV Percentile
As a general rule, when implied volatility percentile is low, it’s better to focus on long volatility trades such as debit spreads, long straddles and long strangles.
It also makes sense to compare a stock’s current IV Percentile to the market in general. If all stocks are showing low IV Percentile, then there might not be much of an edge in buying volatility on a specific stock. But, if general market implied volatility is high, that could be a good time to buy cheap volatility in some of the names above.
It’s also a good idea to keep an eye on the upcoming earnings dates as stocks can make big moves following earnings announcements.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster had a position in: BABA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
Pampa Energia (PAM) appears an attractive pick, as it has been recently upgraded to a Zacks Rank #1 (Strong Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates -- one of the most powerful forces impacting stock prices.
The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate -- the consensus of EPS estimates from the sell-side analysts covering the stock -- for the current and following years is tracked by the system.
Individual investors often find it hard to make decisions based on rating upgrades by Wall Street analysts, since these are mostly driven by subjective factors that are hard to see and measure in real time. In these situations, the Zacks rating system comes in handy because of the power of a changing earnings picture in determining near-term stock price movements.
Therefore, the Zacks rating upgrade for Pampa basically reflects positivity about its earnings outlook that could translate into buying pressure and an increase in its stock price.
Most Powerful Force Impacting Stock Prices
The change in a company's future earnings potential, as reflected in earnings estimate revisions, has proven to be strongly correlated with the near-term price movement of its stock. The influence of institutional investors has a partial contribution to this relationship, as these big professionals use earnings and earnings estimates to calculate the fair value of a company's shares. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their transaction of large amounts of shares then leads to price movement for the stock.
Fundamentally speaking, rising earnings estimates and the consequent rating upgrade for Pampa imply an improvement in the company's underlying business. Investors should show their appreciation for this improving business trend by pushing the stock higher.
Harnessing the Power of Earnings Estimate Revisions
As empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, tracking such revisions for making an investment decision could be truly rewarding. Here is where the tried-and-tested Zacks Rank stock-rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.
The Zacks Rank stock-rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Earnings Estimate Revisions for Pampa
This electricity company is expected to earn $9.54 per share for the fiscal year ending December 2024, which represents a year-over-year change of 73.5%.
Analysts have been steadily raising their estimates for Pampa. Over the past three months, the Zacks Consensus Estimate for the company has increased 20.6%.
Bottom Line
Unlike the overly optimistic Wall Street analysts whose rating systems tend to be weighted toward favorable recommendations, the Zacks rating system maintains an equal proportion of 'buy' and 'sell' ratings for its entire universe of more than 4000 stocks at any point in time. Irrespective of market conditions, only the top 5% of the Zacks-covered stocks get a 'Strong Buy' rating and the next 15% get a 'Buy' rating. So, the placement of a stock in the top 20% of the Zacks-covered stocks indicates its superior earnings estimate revision feature, making it a solid candidate for producing market-beating returns in the near term.
The upgrade of Pampa to a Zacks Rank #1 positions it in the top 5% of the Zacks-covered stocks in terms of estimate revisions, implying that the stock might move higher in the near term.
Zacks Investment Research
Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at Pampa Energia (PAM), which currently has a Momentum Style Score of A. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions.
It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Pampa Energia currently has a Zacks Rank of #1 (Strong Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.
You can see the current list of Zacks #1 Rank Stocks here
Set to Beat the Market?
Let's discuss some of the components of the Momentum Style Score for PAM that show why this electricity company shows promise as a solid momentum pick.
A good momentum benchmark for a stock is to look at its short-term price activity, as this can reflect both current interest and if buyers or sellers currently have the upper hand. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For PAM, shares are up 3.23% over the past week while the Zacks Utility - Electric Power industry is up 0.47% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 11.74% compares favorably with the industry's 3.47% performance as well.
While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Shares of Pampa Energia have increased 35.21% over the past quarter, and have gained 42.45% in the last year. In comparison, the S&P 500 has only moved 3.62% and 26.96%, respectively.
Investors should also pay attention to PAM's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. PAM is currently averaging 184,493 shares for the last 20 days.
Earnings Outlook
The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with PAM.
Over the past two months, 2 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost PAM's consensus estimate, increasing from $7.91 to $9.54 in the past 60 days. Looking at the next fiscal year, 2 estimates have moved upwards while there have been no downward revisions in the same time period.
Bottom Line
Given these factors, it shouldn't be surprising that PAM is a #1 (Strong Buy) stock and boasts a Momentum Score of A. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Pampa Energia on your short list.
Zacks Investment Research
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