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Survive the Financial Armageddon Using the Zacks Rank

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There’s little doubt that what we are witnessing in the stock market right now is a nasty bear market. While the S&P 500 has yet to officially post a close 20% from its peak, the blue-chip index continues to hover right around those levels. The tech-heavy Nasdaq is now down over -30% from its peak last November.

Whereas the coronavirus pandemic-induced plunge was extremely swift (more along the lines of a waterfall decline), this fall in stocks has been fairly orderly and more in sync with what we’ve seen in past bear markets. There’s a myriad of factors that are pulling down equity prices, not least of which is a declining earnings outlook. We’ve seen many stocks get absolutely punished recently for either missing earnings or guiding weak.

That’s why it’s so important to target companies whose earnings picture is actually improving in this market environment. Positive earnings estimate revisions are at the heart of the Zacks Rank, and investors can use this system to find companies that are primed to surge in price – even when most stocks are falling.

The Zacks Industry Rank assists investors in locating groups of stocks whose earnings outlook is improving. One of the ways we can decide which individual stocks to include in our portfolio is by targeting stocks in different industry groups. This also has the added benefit of helping to diversify our portfolio.

The Zacks Fertilizers industry currently ranks in the top 2% out of approximately 250 industries. Because this group is ranked in the top half of all industries, we expect it to outperform the market over the next 3 to 6 months. This group has returned 42.48% this year while the market has been in correction mode. Also note the favorable characteristics for this industry:

Zacks Investment Research
Image Source: Zacks Investment Research

The projected EPS growth looks particularly promising. By targeting stocks within leading industry groups, we can put the odds in our favor and improve our investing results. Let’s take a look at a Zacks Rank #1 (Strong Buy) stock within this top industry.

Sociedad Química y Minera de Chile S.A. (SQM - Free Report)

Sociedad Química y Minera produces and distributes specialty plant nutrients and fertilizers globally. SQM provides potassium chloride and sulfate for crops such as corn, rice, wheat, and sugar. The company also manufactures industrial chemicals and iodine derivative products. In addition, SQM offers lithium carbonates for various applications such as materials for batteries, air-conditioning chemicals, and heat-resistant glass. Sociedad Química y Minera was incorporated in 1968 and is headquartered in Santiago, Chile.

SQM has exceeded earnings estimates in each of the past two quarters. The fertilizer producer most recently reported Q1 EPS last week of $2.79, a 126.83% surprise over the $1.23 consensus estimate. The company has delivered a trailing four-quarter average earnings surprise of 28.19%, aiding the stock’s 140% return over the past year.

Sociedad Quimica y Minera S.A. Price, Consensus and EPS Surprise

Sociedad Quimica y Minera S.A. Price, Consensus and EPS Surprise

Analysts are in agreement in terms of earnings revisions and have bolstered estimates across the board. For the current quarter, EPS estimates were raised 83.02% in the past 60 days. The Q2 Zacks Consensus Estimate now stands at $1.94, translating to an astounding 525.81% growth rate relative to the same quarter last year.

For the full year, analysts have increased EPS estimates by 49.03% in the past 60 days. The Zacks Consensus Estimate is now $6.93, reflecting potential growth of 238.05% versus 2021.

Make sure to put SQM on your watchlist if you haven’t already done so.


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