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How to Find 'Strong Buy' Stocks with this Screener

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The market roared back Tuesday after Wall Street dumped stocks to start the week. All three major U.S. indexes jumped roughly 1.6% as bullish investors decided to break up the recent selling wave. The S&P 500, the Nasdaq, and the Dow all sit within roughly 2% of their July 12 highs amid another busy week of corporate earnings.

The Delta coronavirus variant and economic slowdown worries were cited as the culprits for Monday’s tumble and the recent selling. Yet the quick turnaround might signal the pullback from the market’s highs was based more on profit-taking from technology titans and others who had soared to new highs, and in doing so, reached some frothy technical levels.

The healthy pullback helped recalibrate things. Nonetheless, Wall Street might continue to use the impressive second quarter earnings season as a chance to sell, and then dive back in at more enticing levels (also read: Q2 Earnings Reports Confirm Economic Boom Ahead).

There are real concerns about rising prices and more. But investors with long-term outlooks should try to stay constantly exposed to the market, especially as interest rates retreat once again. And even when the Fed is forced to raise rates, they will likely remain historically low for years.  

Given this backdrop, within a reopened U.S. economy, investors might want to use our Filtered Zacks Rank 5 screener to find strong stocks to potentially add to their portfolios in Q3 and beyond…

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank #1 (Strong Buy) stocks outperform the market in both good and bad times. However, there are over 200 stocks that earn a Zacks Rank #1 at any given time. Therefore, it’s helpful to understand how to apply filters to the Zacks Rank in order to narrow the list down to a more manageable and tradable set of stocks.

Parameters

Clearly, there are only three items on this screen. But together, these three filters can result in some impressive returns.

• Zacks Rank equal to 1

Starting with a Zacks Rank #1 is often a strong jumping off point because it boasts an average annual return of roughly 24.4% per year since 1988.

• % Change (Q1) Est. over 4 Weeks greater than 0

Positive current quarter estimate revisions over the last four weeks.

The Zacks Rank looks at earnings estimate revisions for the current year (F1) and the next year (F2). The additional component factors in current quarter (Q1) estimate revisions. The idea is pretty simple.

A company that has experienced downward revisions for the current quarter could soon see longer-term negative revisions. Meanwhile, if a company has earned positive earnings revisions for its current quarter, it might signal that more upward revisions could be coming down the road, which would make it an attractive buy.

• % Broker Rating Change over 4 Week equal to Top # 5

Top 5 stocks with the best average broker rating changes over the last four weeks.

In this screen, we are searching for positive broker rating changes or upgrades over the last four weeks. On top of that, we want to cut down on the number of stocks that come through. So, we configured the screen to select the top 5 stocks with the best broker rating upgrade.

Investors should note that broker ratings typically lean toward the upside. Therefore, our screen makes sure that the brokers are getting more bullish, or at the least not getting less bullish (or even bearish) on the stock.

It is worth noting that the actual broker ratings do not matter as much as the upgrade itself, because stocks with broker rating upgrades have been proven to outperform their counterparts that do not earn positive broker rating changes or downgrades.

This strategy comes loaded with the Research Wizard and is called bt_sow_filtered zacks rank5. It can be found in the SoW (Screen of the Week) folder.

Here are two of the five stocks that qualified for the Filtered Zacks Rank 5 strategy today…

Sally Beauty Holdings, Inc. (SBH - Free Report)

GMS Inc. (GMS - Free Report)

See the rest of the stocks on this list and start trading the Filtered Zacks Rank 5 (or any of our other strategies) in your own account. Remember, the key to successful screening is finding screens that have produced profitable results in the past. And that's exactly what you get with the Research Wizard stock picking and backtesting program.

Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.

Click here to sign up for a free trial to the Research Wizard today.

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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/


In-Depth Zacks Research for the Tickers Above


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Sally Beauty Holdings, Inc. (SBH) - free report >>

GMS Inc. (GMS) - free report >>