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Investment Ideas

What can be more lucrative than buying a quality stock during a pullback? Buying a stock that the market doesn’t know is quality yet. That’s the idea behind our “Underfollowed Gems” premium screen.

On average, an S&P stock is covered by 14 analysts. So if a name is only being followed by six or fewer, it hasn’t attracted the full attention of the market. In fact, it hasn’t even captured half the interest of the market yet. And if that stock is a Zacks Rank #1 (Strong Buy) or #2 (Buy), it means the market is missing out on a company with rising earnings estimates. But it won’t miss out for long, and the share price will appreciate as more and more analysts realize what they’ve been missing.

Below, you’ll find three Zacks Rank #1s that are underfollowed. The few analysts that are watching these companies have raised their earnings estimates after solid quarterly reports. When the market takes its next leg higher and analysts are less defensive, these stocks may be among the biggest beneficiaries. For the full list and the screen’s parameters, make sure to click the link above.

Constellation Brands (STZ - Free Report)

Whether it’s been a good day or a bad one, there’s nothing better than a glass of wine at the end of the day (or in the middle of one). Better yet, how about a beer! Either way, Constellation Brands (STZ - Free Report) has got you covered. It is the largest wine company in the world with brands such as Robert Mondavi, Clos du Bois, Arbor Mist and Blackstone, among others. But STZ is also the third largest beer company in the U.S. with brands like Corona and Modelo, and it is this business that has made the biggest impact of late. Beer sales were up 11% in the recently-announced fiscal fourth quarter, and gained 17% for the full year. It’s no wonder the CEO calls this business a “powerhouse for growth”.

STZ has beaten the Zacks Consensus Estimate for 10 straight quarters. To put it an even more impressive way, it has only missed twice in the last 5 years. The past four quarters have amassed an average beat of nearly 7.7%. Most recently, it announced earnings per share of $1.48 for its fiscal fourth quarter, which was more than 8% better than our expectations. Net sales climbed 5% to $1.63 billion. It has beaten the Zacks Consensus Estimate for sales for eight straight quarters now. Results were helped by effective integration of recently-acquired brands and, of course, customer demand for having a good time. The consistent focus on brand building is one of the main reasons why the company is encouraged for this fiscal year, while also being able to hike its dividend and initiate share buybacks.

Currently, seven analysts make up the Zacks Consensus Estimate for this fiscal year (ending February 2018), but there are still only six for next fiscal year (ending February 2019). Earnings estimates for this fiscal year are up 5.5% in the past 30 days to $7.99, and have risen 3% in that time for next year to $8.94. So at the moment, next fiscal year is expected to gain nearly 12% from this fiscal year. STZ expects beer sales to rise 9% to 11% this fiscal year, and issued a higher than expected guidance between $7.70 and $8. Shares are up more than 10% so far this year, which is ahead of the beverages-alcohol industry at only 7%.

 

Constellation Brands Inc Price, Consensus and EPS Surprise

Constellation Brands Inc Price, Consensus and EPS Surprise | Constellation Brands Inc Quote


Extreme Networks (EXTR - Free Report)

Extreme Networks (EXTR - Free Report) delivers software-driven networking solutions that help IT departments deliver stronger connections with customers, partners and employees. Through a combination of strong quarterly reports and acquisitions, shares of this company have jumped approximately 43% this year…and it may not be done. Yet, the Zacks Consensus Estimate for this fiscal year (ending in June) is only composed of three estimates, while next year (ending June 2018) only has two estimates. So there’s a good amount of the market that’s not paying attention to this name, which is a mistake since this approximately $7 stock could soon be in the double digits moving forward.

In its most recent earnings report from February, EXTR beat the Zacks Consensus Estimate by an impressive 200%. It marked the 7th straight positive surprise and brought the four-quarter average surprise up to more than 104%. There may not be many analysts covering the stock right now, but that hasn’t impacted its upside. The Zacks Consensus Estimate for this year is up 9% in the past two months. Next year’s estimate has not moved in that timeframe, but is up 16% in the past 3 months to 36 cents. Perhaps most importantly though, next year’s estimate is 50% than this year, showing that EXTR is a stock moving in the right direction.

One of the company’s building blocks is its acquisitions. Late last month, EXTR agreed to acquire the data-center switching, analytics and routing business of Brocade Communications in an all-cash deal valued at $55 million. Shares surged on the news. The acquisition will boost the company’s competitive position, which is led by Cisco and Arista, and lift top-line growth. Also in March, EXTR agreed to buy the networking business of Avaya for $100 million. This acquisition will “broaden Extreme’s enterprise solutions capabilities by complementing our product portfolio across our vertical markets,” according to the company’s President and CEO. It is also expected to “generate over $200 million in annual revenue, increase our market share and offer new opportunities for our customers.”

 

Extreme Networks, Inc. Price, Consensus and EPS Surprise

Extreme Networks, Inc. Price, Consensus and EPS Surprise | Extreme Networks, Inc. Quote


Momo (MOMO - Free Report)

The final profile today is also the youngest company with only six reported quarters so far and the least followed by analysts, yet it has an average volume of more than 5 million shares. The stock is Momo (MOMO - Free Report) , which is kind of like a Chinese Facebook. It is the leading mobile social networking platform in that country. So with a population of more than 1.3 billion people, it has A LOT of connections to make…and it’s been doing a good job at it. The stock has gained more than 100% year to date, and has strung together three straight positive surprises.

MOMO said its fourth quarter was a “milestone”. Earnings per ADS of 41 cents beat the Zacks Consensus Estimate by more than 32% and crushed last year’s result of 3 cents. Net revenue soared 524% to $246.1 million. The live video service segment was the big star, as it reached 3.5 million paying users and generated revenues of $194.8 million. For the first quarter, MOMO expects total revenue between $238 million and $243 million, marking year-over-year gains between 367% and 377%. Zacks was only expecting revenue of $189 million. The full year was equally as impressive as net revenues jumped by 313% to $553.1 million thanks to the live video service, along with the mobile marketing business and value-added service. Earnings per ADS climbed several time over to 71 cents from 7 cents in 2015.

As of right now, the Zacks Consensus Estimate is comprised of only two estimates, so most of the market has yet to notice MOMO. The company is expected to earn $1.20 per ADS for this year, which is up 7.1% over the past two months. The following year is at $1.73, marking a gain of 8.8% in the same timeframe and year-over-year growth of more than 44%.

 

Momo Inc. Price, Consensus and EPS Surprise

Momo Inc. Price, Consensus and EPS Surprise | Momo Inc. Quote


Sell These Stocks. Now.

Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500.

See today's Zacks "Strong Sells" absolutely free >>





In-Depth Zacks Research for the Tickers Above


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Constellation Brands Inc (STZ) - free report >>

Momo Inc. (MOMO) - free report >>

Extreme Networks, Inc. (EXTR) - free report >>