We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Weathering the Economic Storm: This Highly-Ranked Stock Has Flourished
Read MoreHide Full Article
There aren’t many stocks that have consistently outperformed the market in both bullish and bearish settings. Simply put, not many stocks finished 2022 in positive territory, let alone witness a surge to multi-year highs. Despite a very difficult year last year along with a volatile start to 2023, we’ve seen pockets of strength in several different sectors. These pockets have illustrated resilience, and rather than succumb to higher inflation, they’ve actually benefitted from higher prices.
How do we go about detecting these leading areas of the market?
A good 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 length of time that industry groups remain at the top can vary from a few months to many years – it ultimately depends on the market environment. The top-performing industry groups are constantly changing, so investors would be wise to stay abreast of these groups. The stocks within these industries will typically be leading the market, and it is these stocks that we want to target for additions to our portfolio.
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. Over time, your most profitable stocks will be those with upward earnings estimate revisions in the industries enjoying the same.
Targeting the top Zacks Ranked Industries is a great starting point to begin building out your portfolio. Let’s take a look at an example of an industry group whose constituents are receiving positive earnings estimate revisions.
The Zacks Food – Miscellaneous industry group ranks in the top 41% out of approximately 250 industries. Because it is ranked in the top half of all industry groups, we expect this group to outperform the market over the next 3 to 6 months.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Let’s examine a top-ranked stock within this leading industry group that continues to flourish despite a volatile market environment.
Harnessing the Power of the Zacks Rank
Lamb Weston (LW - Free Report) , a Zacks Rank #2 (Buy), has been a substantial beneficiary of the recovery in the foodservice business. LW has been bucking the market volatility over the past year on the heels of higher prices for its product offerings. LW sports a second-best ‘B’ rating in each our Zacks Growth and Value Style Score categories, indicating a strong likelihood that the stock’s outperformance will continue.
Lamb Weston is a global producer, marketer, and distributor of frozen potato products. The company offers frozen potatoes, commercial ingredients, and appetizers under the Lamb Weston brand, in addition to other licensed brands and various customer labels. LW is also engaged in the vegetable and dairy business. It serves retail and foodservice customers, specialty retailers, convenience stores, and both independent and chain restaurants. Lamb Weston was founded in 1950 and is headquartered in Eagle, ID.
Product volumes continue to benefit from a rebound in demand at full-service restaurants and non-commercial channels, like lodging and hospitality. The company has increased prices on its products to counteract higher input, manufacturing, and transportation costs. LW’s efforts to boost offerings and expand capacity have enabled it to effectively meet rising demand conditions for products such as fries and snacks.
Earnings Trends and Future Estimates
LW has exceeded earnings estimates in each of the past four quarters. Back in January, the company reported fiscal Q2 EPS of $1.28/share, marking a 72.97% surprise over the $0.64 consensus estimate. LW has delivered a trailing four-quarter average earnings surprise of 52.64%.
Earnings estimates for the upcoming April announcement have seen positive changes as of late. The fiscal Q3 consensus estimate has been revised upward by 3.19% to $0.97 per share in just the past 60 days. If the company is able to achieve this, it would translate to growth of 32.88% relative to the same quarter last year. Sales are expected to climb 23.45% to $1.18 billion.
Image Source: Zacks Investment Research
Looking further ahead, the future looks just as bright, with analysts increasing their full-year EPS estimates for fiscal 2023 by 5.9% in the last week. The Zacks Consensus EPS Estimate now stands at $3.95/share, reflecting potential growth of 89.9% relative to the previous fiscal year. Sales are seen rising 19.34% to $4.89 billion.
Image Source: Zacks Investment Research
Stock Performance
Last year, LW shares bucked the bear market trend, advancing more than 43% during one of the most difficult market environments in history. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the market experiences a dreaded bearish descent. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Image Source: StockCharts
This year, Lamb Weston shares have already advanced another 9%. With both strong fundamentals and technicals, LW is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Lamb Weston has recently witnessed positive revisions. As long as this trend remains intact (and LW continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Bottom Line
Higher prices of the company’s principal products have contributed to LW’s bullish run. Buoyed by a leading industry group and sector combination, it’s not difficult to see why LW is a compelling investment. Robust sales and earnings growth along with a strong technical trend certainly warrant a closer look.
Implementing the industry group selection in our process can help uncover stocks like LW. The fact is this elite company is still outperforming. The bullish price action is a sign of strength as LW looks to continue its momentum in the months and years ahead.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Weathering the Economic Storm: This Highly-Ranked Stock Has Flourished
There aren’t many stocks that have consistently outperformed the market in both bullish and bearish settings. Simply put, not many stocks finished 2022 in positive territory, let alone witness a surge to multi-year highs. Despite a very difficult year last year along with a volatile start to 2023, we’ve seen pockets of strength in several different sectors. These pockets have illustrated resilience, and rather than succumb to higher inflation, they’ve actually benefitted from higher prices.
How do we go about detecting these leading areas of the market?
A good 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 length of time that industry groups remain at the top can vary from a few months to many years – it ultimately depends on the market environment. The top-performing industry groups are constantly changing, so investors would be wise to stay abreast of these groups. The stocks within these industries will typically be leading the market, and it is these stocks that we want to target for additions to our portfolio.
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. Over time, your most profitable stocks will be those with upward earnings estimate revisions in the industries enjoying the same.
Targeting the top Zacks Ranked Industries is a great starting point to begin building out your portfolio. Let’s take a look at an example of an industry group whose constituents are receiving positive earnings estimate revisions.
The Zacks Food – Miscellaneous industry group ranks in the top 41% out of approximately 250 industries. Because it is ranked in the top half of all industry groups, we expect this group to outperform the market over the next 3 to 6 months.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Let’s examine a top-ranked stock within this leading industry group that continues to flourish despite a volatile market environment.
Harnessing the Power of the Zacks Rank
Lamb Weston (LW - Free Report) , a Zacks Rank #2 (Buy), has been a substantial beneficiary of the recovery in the foodservice business. LW has been bucking the market volatility over the past year on the heels of higher prices for its product offerings. LW sports a second-best ‘B’ rating in each our Zacks Growth and Value Style Score categories, indicating a strong likelihood that the stock’s outperformance will continue.
Lamb Weston is a global producer, marketer, and distributor of frozen potato products. The company offers frozen potatoes, commercial ingredients, and appetizers under the Lamb Weston brand, in addition to other licensed brands and various customer labels. LW is also engaged in the vegetable and dairy business. It serves retail and foodservice customers, specialty retailers, convenience stores, and both independent and chain restaurants. Lamb Weston was founded in 1950 and is headquartered in Eagle, ID.
Product volumes continue to benefit from a rebound in demand at full-service restaurants and non-commercial channels, like lodging and hospitality. The company has increased prices on its products to counteract higher input, manufacturing, and transportation costs. LW’s efforts to boost offerings and expand capacity have enabled it to effectively meet rising demand conditions for products such as fries and snacks.
Earnings Trends and Future Estimates
LW has exceeded earnings estimates in each of the past four quarters. Back in January, the company reported fiscal Q2 EPS of $1.28/share, marking a 72.97% surprise over the $0.64 consensus estimate. LW has delivered a trailing four-quarter average earnings surprise of 52.64%.
Earnings estimates for the upcoming April announcement have seen positive changes as of late. The fiscal Q3 consensus estimate has been revised upward by 3.19% to $0.97 per share in just the past 60 days. If the company is able to achieve this, it would translate to growth of 32.88% relative to the same quarter last year. Sales are expected to climb 23.45% to $1.18 billion.
Image Source: Zacks Investment Research
Looking further ahead, the future looks just as bright, with analysts increasing their full-year EPS estimates for fiscal 2023 by 5.9% in the last week. The Zacks Consensus EPS Estimate now stands at $3.95/share, reflecting potential growth of 89.9% relative to the previous fiscal year. Sales are seen rising 19.34% to $4.89 billion.
Image Source: Zacks Investment Research
Stock Performance
Last year, LW shares bucked the bear market trend, advancing more than 43% during one of the most difficult market environments in history. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the market experiences a dreaded bearish descent. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Image Source: StockCharts
This year, Lamb Weston shares have already advanced another 9%. With both strong fundamentals and technicals, LW is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Lamb Weston has recently witnessed positive revisions. As long as this trend remains intact (and LW continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Bottom Line
Higher prices of the company’s principal products have contributed to LW’s bullish run. Buoyed by a leading industry group and sector combination, it’s not difficult to see why LW is a compelling investment. Robust sales and earnings growth along with a strong technical trend certainly warrant a closer look.
Implementing the industry group selection in our process can help uncover stocks like LW. The fact is this elite company is still outperforming. The bullish price action is a sign of strength as LW looks to continue its momentum in the months and years ahead.