It is known to all that lack of proper guidance in the investment world may lead to huge losses. Thus, if one is not well-prepared, braving the uncertainties in the equity market is no mean feat. However, given the time constraint these days it is near impossible to be thoroughly ready to deal with the volatility associated with the stock market, unless guided by the “experts” in this field.

The “experts” are brokers who are equipped with detailed knowledge about the space. 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.

With investors pumping in their hard-earned money into the stock market, naturally they would want to design a portfolio of stocks that would fetch them handsome returns. Therefore, it is in the best interest of investors to seek and pay heed to guidance of experts.  

Brokers thoroughly scrutinize the publicly available financial documents apart from attending company conference calls and other presentations. Consequently, opinion of brokers should act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Earnings Estimates: An Important Pointer

Broker ratings are by no means arbitrary and are backed by sound logic. The direction of the estimate revisions serve as an important pointer regarding the price of a stock. In fact, a rating upgrade normally leads to stock price appreciation and vice versa.

One of the well-accepted investment strategies is to maintain a diversified portfolio to generate handsome returns irrespective of the market conditions. For instance, in the face of extremely low oil prices, analysts adopt a bullish stance on airline stocks and consequently raise estimates.  Naturally, adding such stocks to one’s portfolio in such a scenario might prove to be a winning strategy. Similarly, analysts might turn bearish and trim estimates, thereby downgrading a stock following adverse events like lackluster earnings or pipeline failure (for a biotech player). Naturally, investors would look to get rid of such stocks from their portfolio, on the basis of broker advice.

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.

Count the Top Line

According to many market watchers, a revenue beat is more creditable for a company than a mere earnings outperformance, especially in an environment of revenue weakness due to macroeconomic headwinds like a strong dollar. To take care of the top line, we have considered the price/sales ratio for screening stocks.

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 full-proof and winning one, we have added the following screening parameters:

Price-to-Sales = Bot%10: The lower the ratio, the better. Companies meeting this criterion are in the 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:

Headquartered in Minneapolis, MN, Arctic Cat Inc. manufactures and markets snowmobiles and all-terrain vehicles as well as related parts, garments and accessories throughout the contiguous U.S. and Canada, and through distributors representing dealers in Alaska, Europe, the Middle East, Asia and other international markets. This Zacks Rank # 3 (Hold) company has an impressive earnings per share growth rate (3–5 years) of 13%.

American Axle & Manufacturing Holdings Inc. (AXL Quick QuoteAXL - Free Report) is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. The company has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 10.7%. The automobile stock carries a Zacks Rank #3.

Delek US Holdings, Inc. (DK Quick QuoteDK - Free Report) is a diversified energy business focused on petroleum refining, marketing and supply of refined products, and retail marketing of fuel and general merchandise. This Zacks Rank # 3 company has an impressive earnings per share growth rate (3–5 years) of 10%.

Basic Energy Services provides a range of services to America's oil and gas producers. Its operations span the heartland of domestic onshore production from Texas, Oklahoma, Louisiana and New Mexico to the Rocky Mountain states. The company surpassed the Zacks Consensus Estimate in two of the last four quarters by an average of 4.6%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

New York-based Arconic Inc. , formed through the separation of aluminum giant Alcoa Inc., is a global leader in multi-material, precision engineered products and solutions for a variety of industries. This Zacks Rank #3 company, formerly known as Alcoa Inc., has an impressive track record with respect to earnings, having beat the Zacks Consensus Estimate in three of the last four quarters by an average of 86%.

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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