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It's been a rough go for passive equity investors this year with the major indexes remaining vulnerable and unpredictable. Volatility has returned, as the VIX index (commonly referred to as the ‘fear’ gauge) has hit levels in recent weeks not seen in over a year. It just simply isn’t an easy-money market environment, as countless worries persist in the present investment landscape – including foreign turmoil with Russia and Ukraine, inflationary pressures, continuing supply chain issues, and a Fed set to embark on a rate hike journey.
The last several years have treated passive mutual fund and ETF investors rather kindly, with both the S&P 500 and Nasdaq returning double digits in three consecutive years. This year is likely to prove more of an obstacle for passive investors; naturally, this opens the door for the astute active investor and provides them with a greater possibility to outperform.
How can we begin to identify which stocks are leading in the current market environment?
The first step is to identify leading industry groups. Quantitative research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. Focusing on stocks within the top-performing industries provides a constant ‘tailwind’ to our investing results. Including this step in our selection process also allows us to narrow down the investment universe and select stocks with the best profit potential.
The best-performing industry groups are dynamic and constantly evolving, so investors would be wise to stay abreast of these groups. The stocks within these groups will typically be leading the market – and it is these stocks that we want to target for long trade initiations.
Fortunately for investors, we here at Zacks provide you with a proprietary industry group ranking system called the Zacks Industry Rank. This system harnesses the power of the Zacks Rank, meaning that the top-ranked industries contain more stocks that are receiving upward earnings estimate revisions. Simply put, your most profitable stocks will be those with upward earnings estimate revisions in the industries enjoying the same.
Beginning with this bottom-up approach and identifying the top Zacks Ranked Industries is a great starting point to begin identifying leading stocks. Let’s take a look at an example of an industry group that is outperforming in the current market environment and whose constituents are receiving positive earnings estimate revisions.
The Zacks Food-Confectionery industry, part of the Consumer Staples sector, is currently ranked in the top 9% out of more than 250 industries. Below we will analyze two constituents that are part of this leading industry group and whose stocks are vastly outperforming the market.
Hostess Brands, Inc.
Hostess Brands is a packaged food company that develops, manufactures, and distributes snack products primarily in the United States. TWNK provides a wide range of sweets such as donuts, pastries, cookies and wafers under various recognized brands like Twinkies, CupCakes, Donettes, HoHos, and Cloverhill. Hostess Brands was founded in 1919 and is headquartered in Lenexa, KS.
A Zacks #2 (Buy) stock, TWNK has exceeded earnings estimates in each quarter for the past three years running. The company most recently reported Q4 EPS earlier this week of $0.25 for the quarter ending last December, an 8.7% surprise over consensus estimates. TWNK has delivered a trailing four-quarter average earnings surprise of 5.95%, aiding the stock’s 52.08% return in the past year.
Hostess Brands Price and EPS Surprise
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently witnessed positive earnings estimate revision activity. This proprietary Zacks technique has been very useful for finding positive earnings surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
TWNK currently boasts a positive Earnings ESP (+0.47%) for the current quarter. A beat may be in the cards when the company delivers its Q1 results on May 16th.
As we head further into 2022, analysts covering TWNK have increased their full-year EPS estimates by 1.06% in just the past week. The Zacks Consensus EPS Estimate stands at $0.95, representing growth of 7.95% versus last year. Sales are expected to rise 7.96% to $1.23 billion.
The Hershey Company is a global confectionery leader, providing items such as chocolate, sweets, mints and other snacks. HSY offers its products under well-known brands such as Hershey’s, Reese’s, Jolly Rancher, and Kit Kat. The company markets and sells its products to wholesale distributors, chain grocery stores, mass merchandisers, vending companies, and drug and convenience stores. HSY was founded in 1894 and is based out of Hershey, PA.
HSY reported stellar Q4 results back in February for the quarter ending in December of last year, sporting EPS of $1.69 which translated to a +3.68% surprise over estimates. Solid consumer demand for its brands contributed to the upbeat performance. HSY’s market share has remained above pre-pandemic levels.
The confectionary firm has posted an average earnings surprise of 4.31% over the prior four quarters. The stock has been outperforming during the past year, delivering investors a 47.57% gain over that time frame.
Hershey Company The Price and EPS Surprise
Analysts have upped their HSY earnings estimates for the current year by 4.34% in the past 60 days. The Zacks Consensus Estimate for ’22 EPS stands at $7.94 – a 10.58% growth rate over 2021. HSY continues to overdeliver and is one of the market leaders in a cautionary investment climate.
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Why It Pays To Be An Active Investor This Year
It's been a rough go for passive equity investors this year with the major indexes remaining vulnerable and unpredictable. Volatility has returned, as the VIX index (commonly referred to as the ‘fear’ gauge) has hit levels in recent weeks not seen in over a year. It just simply isn’t an easy-money market environment, as countless worries persist in the present investment landscape – including foreign turmoil with Russia and Ukraine, inflationary pressures, continuing supply chain issues, and a Fed set to embark on a rate hike journey.
The last several years have treated passive mutual fund and ETF investors rather kindly, with both the S&P 500 and Nasdaq returning double digits in three consecutive years. This year is likely to prove more of an obstacle for passive investors; naturally, this opens the door for the astute active investor and provides them with a greater possibility to outperform.
How can we begin to identify which stocks are leading in the current market environment?
The first step is to identify leading industry groups. Quantitative research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. Focusing on stocks within the top-performing industries provides a constant ‘tailwind’ to our investing results. Including this step in our selection process also allows us to narrow down the investment universe and select stocks with the best profit potential.
The best-performing industry groups are dynamic and constantly evolving, so investors would be wise to stay abreast of these groups. The stocks within these groups will typically be leading the market – and it is these stocks that we want to target for long trade initiations.
Fortunately for investors, we here at Zacks provide you with a proprietary industry group ranking system called the Zacks Industry Rank. This system harnesses the power of the Zacks Rank, meaning that the top-ranked industries contain more stocks that are receiving upward earnings estimate revisions. Simply put, your most profitable stocks will be those with upward earnings estimate revisions in the industries enjoying the same.
Beginning with this bottom-up approach and identifying the top Zacks Ranked Industries is a great starting point to begin identifying leading stocks. Let’s take a look at an example of an industry group that is outperforming in the current market environment and whose constituents are receiving positive earnings estimate revisions.
The Zacks Food-Confectionery industry, part of the Consumer Staples sector, is currently ranked in the top 9% out of more than 250 industries. Below we will analyze two constituents that are part of this leading industry group and whose stocks are vastly outperforming the market.
Hostess Brands, Inc.
Hostess Brands is a packaged food company that develops, manufactures, and distributes snack products primarily in the United States. TWNK provides a wide range of sweets such as donuts, pastries, cookies and wafers under various recognized brands like Twinkies, CupCakes, Donettes, HoHos, and Cloverhill. Hostess Brands was founded in 1919 and is headquartered in Lenexa, KS.
A Zacks #2 (Buy) stock, TWNK has exceeded earnings estimates in each quarter for the past three years running. The company most recently reported Q4 EPS earlier this week of $0.25 for the quarter ending last December, an 8.7% surprise over consensus estimates. TWNK has delivered a trailing four-quarter average earnings surprise of 5.95%, aiding the stock’s 52.08% return in the past year.
Hostess Brands Price and EPS Surprise
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently witnessed positive earnings estimate revision activity. This proprietary Zacks technique has been very useful for finding positive earnings surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
TWNK currently boasts a positive Earnings ESP (+0.47%) for the current quarter. A beat may be in the cards when the company delivers its Q1 results on May 16th.
As we head further into 2022, analysts covering TWNK have increased their full-year EPS estimates by 1.06% in just the past week. The Zacks Consensus EPS Estimate stands at $0.95, representing growth of 7.95% versus last year. Sales are expected to rise 7.96% to $1.23 billion.
The Hershey Company (HSY - Free Report)
The Hershey Company is a global confectionery leader, providing items such as chocolate, sweets, mints and other snacks. HSY offers its products under well-known brands such as Hershey’s, Reese’s, Jolly Rancher, and Kit Kat. The company markets and sells its products to wholesale distributors, chain grocery stores, mass merchandisers, vending companies, and drug and convenience stores. HSY was founded in 1894 and is based out of Hershey, PA.
HSY reported stellar Q4 results back in February for the quarter ending in December of last year, sporting EPS of $1.69 which translated to a +3.68% surprise over estimates. Solid consumer demand for its brands contributed to the upbeat performance. HSY’s market share has remained above pre-pandemic levels.
The confectionary firm has posted an average earnings surprise of 4.31% over the prior four quarters. The stock has been outperforming during the past year, delivering investors a 47.57% gain over that time frame.
Hershey Company The Price and EPS Surprise
Analysts have upped their HSY earnings estimates for the current year by 4.34% in the past 60 days. The Zacks Consensus Estimate for ’22 EPS stands at $7.94 – a 10.58% growth rate over 2021. HSY continues to overdeliver and is one of the market leaders in a cautionary investment climate.