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Earnings season is a great time to rebalance your portfolio, adding stocks that can get you quick upside once there’s the announcement. But obviously, with the pandemic wreaking the kind of havoc that it is, there’s the need for an abundance of caution, more than ever before.
Many of us already have our favorite strategies that we’ve perhaps back tested for effectiveness. However, such things may not work as effectively this season, simply because you don’t have precedents for pandemics!
So if you’re looking to play safe this time round and don’t have a whole lot of cash to play with, read on.
First of all, at the risk of sounding like a broken record, I want to ask you to consider the Zacks Rank. You can’t overstate the importance of this criterion because it has a proven track record. And although the pandemic isn’t factored into it, there are other mechanisms including recessions that are. This makes it a rather robust tool to identify winners.
The rank classifies companies based on their strengths and weaknesses, allotting numbers 1 to 5, with 1 being Strong Buy, 2 Buy, 3 Hold, 4 Sell and 5 Strong Sell.
Second, consider the value-growth-momentum (VGM) Score. The factors that make a stock a value, growth or momentum pick are summarized into separate scores which are then averaged into the VGM score. It’s a good indicator of the potential returns on a stock. A VGM score of A or B is acceptable for investment.
Third, as I pointed out earlier, the industry is going to have an outsized impact on how stocks do this season. So it’s important to choose industries that are likely to do better. Zacks classifies stocks into 250+ industries, allotting a rank to each, so that considerably narrows down the options. It is much easier to first select industries with a positive rank (in the top 50% of Zacks-classified industries) and then select segments in which you may want exposure. Historically, the top 50% has outperformed the bottom 50% by a factor of more than 2 to 1.
Fourth, a leading indicator for earnings announcements is upward trending estimates. So once you’ve selected your industry, it’s time to check out stock details. And of course, if estimates show an upward trend, this is a good indicator that good things are happening in there that analysts have got wind of.
The more recent estimates are averaged and their percentage difference from the Zacks Consensus is expressed as the Zacks earnings expected surprise prediction, or ESP. When positive and paired with a Zacks Rank of #3 or higher, it in itself is a good indicator of a positive earnings surprise. In this environment in particular, there’s a good chance that any positive surprise will push up share prices. It pays to keep an eye on this number because analysts may continue to adjust estimates until the company reports.
The final point is valuation. The market being where it is today, it’s really difficult to find stocks that aren’t either fully or richly valued. Although a technical matter, this is worth checking out because such stocks can slump pretty badly if you’ve erred in your estimations. Undervalued stocks help to limit this kind of downside.
You may want to consider the following stocks since they satisfy all of the above criteria-
WillScot provides modular and portable storage solutions. It operates principally in the U.S., Canada, Mexico and the UK. Its fleet of over 350,000 portable offices and storage containers are used across the commercial and industrial, construction, retail, education, health care, government, transportation, security, and energy sectors.
Other details-
Zacks Rank #2
VGM Score A
Industry: Furniture (top 13% of Zacks-classified industries)
The Zacks Consensus Estimate for 2020 went from earnings of 19 cents 7 days ago to 58 cents
For 2021, the estimate went from 40 cents to 75 cents
In 2020, the company is expected to grow from a loss of 10 cents in 2019 to earnings of 58 cents. In 2021, this is expected to grow to 75 cents
The earnings ESP for the June quarter is 29.6%
Valuation: On the basis of price to forward 12 months’ earnings, the current multiple of 29.96X is close to its median value of 26.23X, and significantly below the annual high of 68.48X. The S&P 500 is at its annual high of 23.01X. So further upside appears to be in the cards.
Verra Mobility designs and develops mobility software. It offers speed, bus lane, railroad crossing, and school bus top arm enforcement and enforcement ticketing, as well as crash reports and video-enabled crime data analysis solutions.
Zacks Rank #2
VGM Score B
Industry: Security and Safety Services (top 16%)
While remaining below 2019 levels, the Zacks Consensus Estimate for 2020 went from 42 cents 30 days ago to 48 cents currently
For 2021, the estimated earnings went from 70 cents to 75 cents
The earnings ESP for the June quarter is 133.3%
Valuation: At 17.17X forward 12 month’s P/E, the current multiple is below the median value of 18.82X. So the shares are undervalued.
WisdomTree Investments, Inc.
Wisdom Tree is an information services company that publishes and markets Individual Investor magazine and Individual Investor's Special Situations Reports. Through wholly-owned subsidiaries, it also manages private investment funds.
Zacks Rank #2
VGM Score B
Industry: Financial - Investment Bank (top 39%)
While remaining a penny below 2019 levels, the Zacks Consensus Estimate for 2020 went from 19 cents 7 days ago to 21 cents currently
For 2021, the estimate went from 22 cents to 24 cents
The earnings ESP for the June quarter is 6.3%
Valuation: At 16.15X forward 12 month’s P/E, the current multiple is below the median value of 18.77X. So the shares are undervalued.
Extraction Oil & Gas
Extraction Oil & Gas is an oil and gas company focused on the acquisition, development and production of oil, natural gas and natural gas liquids reserves in the Rocky Mountains, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado.
Zacks Rank #2
VGM Score A
Industry: Oil and Gas - Exploration and Production - United States (top 36%)
The Zacks Consensus Estimate for 2020 went from a loss of 89 cents 30 days ago to a loss of 27 cents currently
For 2021, the estimated loss went from 70 cents to 15 cents
The reduction in losses amounts to a 41.3% gain in 2020 and 44.4% gain in 2021
The earnings ESP for the June quarter is 0%
Valuation: The current multiple of 0.03X forward sales is below the median value of 0.22X. The S&P 500 is at its annual high of 3.60X. So the shares are undervalued.
Noble Energy Inc.
Noble Energy is an independent energy company engaged in the exploration and production (E&P) of crude oil, natural gas and natural gas liquids (NGLs) across the world. The company has a diversified basket of short- and long-term projects, both onshore and offshore, across domestic and international locations.
Zacks Rank #1
VGM Score A
Industry: Oil and Gas - Exploration and Production - United States (top 36%)
While remaining well above 2019 levels, the estimated loss per share for 2020 moved from 91 cents to 83 cents over the last 30 days.
For 2021, the estimated loss per share went from 80 cents to 59 cents
The earnings ESP for the June quarter is 18.4%
Valuation: At 1.45X forward sales, the current multiple is below the median value of 2.13X. So the shares are undervalued.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
How to Pick Stocks This Earnings Season
Earnings season is a great time to rebalance your portfolio, adding stocks that can get you quick upside once there’s the announcement. But obviously, with the pandemic wreaking the kind of havoc that it is, there’s the need for an abundance of caution, more than ever before.
Many of us already have our favorite strategies that we’ve perhaps back tested for effectiveness. However, such things may not work as effectively this season, simply because you don’t have precedents for pandemics!
So if you’re looking to play safe this time round and don’t have a whole lot of cash to play with, read on.
First of all, at the risk of sounding like a broken record, I want to ask you to consider the Zacks Rank. You can’t overstate the importance of this criterion because it has a proven track record. And although the pandemic isn’t factored into it, there are other mechanisms including recessions that are. This makes it a rather robust tool to identify winners.
The rank classifies companies based on their strengths and weaknesses, allotting numbers 1 to 5, with 1 being Strong Buy, 2 Buy, 3 Hold, 4 Sell and 5 Strong Sell.
Second, consider the value-growth-momentum (VGM) Score. The factors that make a stock a value, growth or momentum pick are summarized into separate scores which are then averaged into the VGM score. It’s a good indicator of the potential returns on a stock. A VGM score of A or B is acceptable for investment.
Third, as I pointed out earlier, the industry is going to have an outsized impact on how stocks do this season. So it’s important to choose industries that are likely to do better. Zacks classifies stocks into 250+ industries, allotting a rank to each, so that considerably narrows down the options. It is much easier to first select industries with a positive rank (in the top 50% of Zacks-classified industries) and then select segments in which you may want exposure. Historically, the top 50% has outperformed the bottom 50% by a factor of more than 2 to 1.
Fourth, a leading indicator for earnings announcements is upward trending estimates. So once you’ve selected your industry, it’s time to check out stock details. And of course, if estimates show an upward trend, this is a good indicator that good things are happening in there that analysts have got wind of.
The more recent estimates are averaged and their percentage difference from the Zacks Consensus is expressed as the Zacks earnings expected surprise prediction, or ESP. When positive and paired with a Zacks Rank of #3 or higher, it in itself is a good indicator of a positive earnings surprise. In this environment in particular, there’s a good chance that any positive surprise will push up share prices. It pays to keep an eye on this number because analysts may continue to adjust estimates until the company reports.
The final point is valuation. The market being where it is today, it’s really difficult to find stocks that aren’t either fully or richly valued. Although a technical matter, this is worth checking out because such stocks can slump pretty badly if you’ve erred in your estimations. Undervalued stocks help to limit this kind of downside.
You may want to consider the following stocks since they satisfy all of the above criteria-
WillScot Corporation (WSC - Free Report)
WillScot provides modular and portable storage solutions. It operates principally in the U.S., Canada, Mexico and the UK. Its fleet of over 350,000 portable offices and storage containers are used across the commercial and industrial, construction, retail, education, health care, government, transportation, security, and energy sectors.
Other details-
Zacks Rank #2
VGM Score A
Industry: Furniture (top 13% of Zacks-classified industries)
The Zacks Consensus Estimate for 2020 went from earnings of 19 cents 7 days ago to 58 cents
For 2021, the estimate went from 40 cents to 75 cents
In 2020, the company is expected to grow from a loss of 10 cents in 2019 to earnings of 58 cents. In 2021, this is expected to grow to 75 cents
The earnings ESP for the June quarter is 29.6%
Valuation: On the basis of price to forward 12 months’ earnings, the current multiple of 29.96X is close to its median value of 26.23X, and significantly below the annual high of 68.48X. The S&P 500 is at its annual high of 23.01X. So further upside appears to be in the cards.
Verra Mobility Corp. (VRRM - Free Report)
Verra Mobility designs and develops mobility software. It offers speed, bus lane, railroad crossing, and school bus top arm enforcement and enforcement ticketing, as well as crash reports and video-enabled crime data analysis solutions.
Zacks Rank #2
VGM Score B
Industry: Security and Safety Services (top 16%)
While remaining below 2019 levels, the Zacks Consensus Estimate for 2020 went from 42 cents 30 days ago to 48 cents currently
For 2021, the estimated earnings went from 70 cents to 75 cents
The earnings ESP for the June quarter is 133.3%
Valuation: At 17.17X forward 12 month’s P/E, the current multiple is below the median value of 18.82X. So the shares are undervalued.
WisdomTree Investments, Inc.
Wisdom Tree is an information services company that publishes and markets Individual Investor magazine and Individual Investor's Special Situations Reports. Through wholly-owned subsidiaries, it also manages private investment funds.
Zacks Rank #2
VGM Score B
Industry: Financial - Investment Bank (top 39%)
While remaining a penny below 2019 levels, the Zacks Consensus Estimate for 2020 went from 19 cents 7 days ago to 21 cents currently
For 2021, the estimate went from 22 cents to 24 cents
The earnings ESP for the June quarter is 6.3%
Valuation: At 16.15X forward 12 month’s P/E, the current multiple is below the median value of 18.77X. So the shares are undervalued.
Extraction Oil & Gas
Extraction Oil & Gas is an oil and gas company focused on the acquisition, development and production of oil, natural gas and natural gas liquids reserves in the Rocky Mountains, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado.
Zacks Rank #2
VGM Score A
Industry: Oil and Gas - Exploration and Production - United States (top 36%)
The Zacks Consensus Estimate for 2020 went from a loss of 89 cents 30 days ago to a loss of 27 cents currently
For 2021, the estimated loss went from 70 cents to 15 cents
The reduction in losses amounts to a 41.3% gain in 2020 and 44.4% gain in 2021
The earnings ESP for the June quarter is 0%
Valuation: The current multiple of 0.03X forward sales is below the median value of 0.22X. The S&P 500 is at its annual high of 3.60X. So the shares are undervalued.
Noble Energy Inc.
Noble Energy is an independent energy company engaged in the exploration and production (E&P) of crude oil, natural gas and natural gas liquids (NGLs) across the world. The company has a diversified basket of short- and long-term projects, both onshore and offshore, across domestic and international locations.
Zacks Rank #1
VGM Score A
Industry: Oil and Gas - Exploration and Production - United States (top 36%)
While remaining well above 2019 levels, the estimated loss per share for 2020 moved from 91 cents to 83 cents over the last 30 days.
For 2021, the estimated loss per share went from 80 cents to 59 cents
The earnings ESP for the June quarter is 18.4%
Valuation: At 1.45X forward sales, the current multiple is below the median value of 2.13X. So the shares are undervalued.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>