Investors, while designing their portfolio of stocks, solely aim at raking in handsome returns. However, the task is easier said than done because selecting the right stocks out of a deluge at any point of time is no mean feat.
Moreover, with time at a premium these days, it is next to impossible for investors to keep track of market movements to identify the opportune moment(s) for buying or offloading a particular stock to maximize returns. Therefore, guidance from proper channels is a must.
Broker Advice – The Way Forward
To combat the above problems, it is in the best interest of investors to be guided by he “experts” in the field of investing. These “experts” are brokers who are equipped with detailed knowledge about the space. Individual investors, generally, do not have access to such detailed and well-researched information.
Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a lot more information on a company and its prospects than individual investors. To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations. Broker opinion should thus act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.
Earnings Estimate Revisions
Since brokers meticulously follow the stocks in their coverage, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. The estimate revisions serve as an important pointer regarding the price of a stock.
For example, an earnings beat by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings often lead to stock price depreciation. Investors tend to be guided by the direction of estimate revisions and stock price while formulating their investment strategy. To take care of the earnings performance, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the last four weeks.
What About Revenues?
While we have talked about the bottom line in detail, the top line (revenue portion) cannot be ignored. Actually, according to many market watchers a revenue beat is more creditable for a company than a mere earnings outperformance. This especially holds true in an environment of revenue weakness due to macroeconomic headwinds like a strong dollar or lackluster demand for travel (which will hurt travel-focused companies). To address top-line concerns, we have included in our screen the price/sales ratio that serves as a strong complementary valuation metric.
Screening Criteria
# (Up- Down Rating)/ Total (4 weeks) =Top #75: This gives the list of top 75 companies that have witnessed net upgrades over the last 4 weeks.
% change in Q (1) est. (4 weeks) = Top #10: This gives the top 10 stocks that have witnessed earnings estimate revisions over the past 4 weeks for the upcoming quarter.
To ensure that the strategy is a winning one, covering all bases, we have added the following screening parameters:
Price-to-Sales = Bot%10: The lower the ratio the better, companies meeting this criterion are in bottom 10% of our universe of over 7,700 stocks with respect to this ratio.
Price greater than 5: A stock trading below $5 will not likely create significant interest for most investors.
Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded.
Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000 if one judges by market capitalization.
Com/ADR/Canadian= Com: This takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
Abercrombie & Fitch Co. ANF is a leading, global specialty retailer of apparel and accessories, which markets its products under three renowned brands – the iconic Abercrombie & Fitch brand, the Hollister brand and abercrombie kids. The company, based in New Albany, OH, has stores across North America, Europe, Asia and the Middle East, as well as an online presence. This Zacks Rank #3 (Hold) stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 14.1% upward over the last 30 days.
Cloud Peak Energy Inc. CLD operates as a producer of low sulfur, high quality, sub-bituminous coal in the United States. Its average EPS surprise over the last four quarters is more than 100%. Cloud Peak Energy sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Builders FirstSource, Inc. BLDR manufactures and supplies building materials, manufactured components, and construction services to professional contractors, sub-contractors, and consumers in the United States. The company has an impressive track with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 58.6%. The company carries a Zacks Rank #3.
Delek US Holdings, Inc. DK: Headquartered in Brentwood, TN, Delek US is a diversified downstream energy company with assets focused on refining, logistics, asphalt wholesale distribution of refined products, and convenience retail. This Zacks Rank #2 (Buy) stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 17.1% upward over the last 30 days.
Chico's FAS CHS is a cultivator of brands serving the lifestyle needs of fashion-savvy women aged 30 years and above. The company, founded in 1983, is headquartered in Fort Myers, FL. This Zacks Rank #3 stock has an impressive expected earnings per share growth rate (next 3 to 5 years) of 10%. Moreover, the stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 14.3% upward over the last 30 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.
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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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