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Bet on These 5 Top-Ranked Stocks With Strong Sales Growth
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With the earnings season in full swing, investors often make decisions based on bottom-line performance, and fail to consider sales growth as a dependable metric when it comes to selecting stocks. However, betting on stocks based on such a perception may not prove worthwhile.
Sales growth is an important metric for any company, as it is a vital part of growth projections and instrumental in strategic decision making. By keeping an eye on this key metric over a significant period of time, one can clearly understand a company’s growth trend.
Sales growth is essential to justify the fixed and variable expenses incurred to operate a business. Low revenues lead to unprofitable business and hamper financials. Stagnant companies may garner near-term profit but can’t generate enough growth to attract new investors.
Also, in a growing economy, lack of sales rise usually indicates that the company is not gaining market share over its peers. In simple terms, some sustained sales growth is required to support the bottom line.
Focusing solely on sales growth is not enough though. A healthy sales growth rate is certainly a positive indicator for picking good stocks but it does not ensure profits. So, taking into consideration a company’s cash position along with its sales number can prove to be a more dependable strategy.
Substantial cash on hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. Cash also enables a company to endure market downturns. A strong liquidity position indicates that revenues are being channelized in the right direction.
Choosing Winning Stocks
In order to shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added certain other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Here are five of the 18 stocks that qualified the screening:
Boston, MA-based Vertex Pharmaceuticals (VRTX - Free Report) is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases. Its expected sales growth rate for 2021 is 12.1%. The stock carries a Zacks Rank #2 at present.
Headquartered in Waltham, MA, PerkinElmer, Inc. provides scientific instruments, consumables, and services to pharmaceutical, biomedical, environmental testing, chemical, and general industrial markets worldwide. Its expected sales growth rate for 2021 is 4.6%. The stock currently sports a Zacks Rank #1.
New Britain, CT, Stanley Black & Decker, Inc. (SWK - Free Report) manufactures and provides tools (power and hand tools) and related accessories, healthcare solutions, electronic security solutions, engineered fastening systems, and many more items and services. The company’s expected sales growth rate for 2021 is 6.2% and it currently carries a Zacks Rank #2.
3M Company (MMM - Free Report) , headquartered in St. Paul, MN, operates as a diversified technology firm. Its expected sales growth rate for 2021 is 5.5%. The stock carries a Zacks Rank #2 at present.
Based in Itasca, IL, Arthur J. Gallagher & Co. (AJG - Free Report) provides insurance brokerage and consulting services and third-party claims settlement and administration services. Its expected sales growth rate for 2021 is 7.6%. The stock currently carries a Zacks Rank #2.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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.
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.
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Bet on These 5 Top-Ranked Stocks With Strong Sales Growth
With the earnings season in full swing, investors often make decisions based on bottom-line performance, and fail to consider sales growth as a dependable metric when it comes to selecting stocks. However, betting on stocks based on such a perception may not prove worthwhile.
Sales growth is an important metric for any company, as it is a vital part of growth projections and instrumental in strategic decision making. By keeping an eye on this key metric over a significant period of time, one can clearly understand a company’s growth trend.
Sales growth is essential to justify the fixed and variable expenses incurred to operate a business. Low revenues lead to unprofitable business and hamper financials. Stagnant companies may garner near-term profit but can’t generate enough growth to attract new investors.
Also, in a growing economy, lack of sales rise usually indicates that the company is not gaining market share over its peers. In simple terms, some sustained sales growth is required to support the bottom line.
Focusing solely on sales growth is not enough though. A healthy sales growth rate is certainly a positive indicator for picking good stocks but it does not ensure profits. So, taking into consideration a company’s cash position along with its sales number can prove to be a more dependable strategy.
Substantial cash on hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. Cash also enables a company to endure market downturns. A strong liquidity position indicates that revenues are being channelized in the right direction.
Choosing Winning Stocks
In order to shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added certain other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 18 stocks that qualified the screening:
Boston, MA-based Vertex Pharmaceuticals (VRTX - Free Report) is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases. Its expected sales growth rate for 2021 is 12.1%. The stock carries a Zacks Rank #2 at present.
Headquartered in Waltham, MA, PerkinElmer, Inc. provides scientific instruments, consumables, and services to pharmaceutical, biomedical, environmental testing, chemical, and general industrial markets worldwide. Its expected sales growth rate for 2021 is 4.6%. The stock currently sports a Zacks Rank #1.
New Britain, CT, Stanley Black & Decker, Inc. (SWK - Free Report) manufactures and provides tools (power and hand tools) and related accessories, healthcare solutions, electronic security solutions, engineered fastening systems, and many more items and services. The company’s expected sales growth rate for 2021 is 6.2% and it currently carries a Zacks Rank #2.
3M Company (MMM - Free Report) , headquartered in St. Paul, MN, operates as a diversified technology firm. Its expected sales growth rate for 2021 is 5.5%. The stock carries a Zacks Rank #2 at present.
Based in Itasca, IL, Arthur J. Gallagher & Co. (AJG - Free Report) provides insurance brokerage and consulting services and third-party claims settlement and administration services. Its expected sales growth rate for 2021 is 7.6%. The stock currently carries a Zacks Rank #2.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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