The second-quarter earnings season is picking up the pace with hordes of companies from different sectors reporting their quarterly financial numbers. As expected, the coronavirus pandemic continues to adversely impact the overall earnings picture with some sectors being more severely dented than others.
However, it is not all gloom and doom as some signs of improvement particularly with respect to earnings outlook are visible. Moreover, multiple positive economic readings are emerging of late. For instance, the latest new home sales data indicates that sales of new single-family homes in the United States hit a
13-year high in June. On the flip side, the recent spike in coronavirus-infected cases in the country following a second wave could dim this bright prospect.
Against such a turbulent backdrop, it is very difficult for investors to design a winning portfolio of stocks without proper guidance.
Broker Advice: The Way Forward
The requisite guidance to build a promising portfolio comes from brokers. Brokers invest a lot of time in researching stocks under their coverage. Such investment specialists attend conference calls and company presentations plus interact with the top brass.
Brokers revise their earnings estimates after carefully examining the pros and cons of an event for the concerned stock. Naturally, their stock-related actions (upgrade or downgrade) serve as an invaluable indicator as far as fixing the target price of stock (s) is concerned. Reckoning their thorough understanding of the stock market as highlighted in this write-up, it will be only intelligent for investors to pay heed to brokers’ suggestions to stand in good stead.
Capitalizing on Broker Opinions
The above write-up clearly suggests that by following broker strategies, one can arrive at a lucrative portfolio of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on better analyst recommendations and upward revisions to earnings estimates over the last four weeks. Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it is included as a determining factor to opt for the best bets. The price/sales ratio takes care of the company’s top line, making the plan foolproof.
Screening Criteria # (Up- Down Rating)/ Total (4 weeks) =Top #75 (This gives the list of top 75 companies that have witnessed net upgrades over the last 4 weeks). % change in Q (1) est. (4 weeks) = Top #10 (This gives the top 10 stocks that have witnessed earnings estimate revisions over the past 4 weeks for the upcoming quarter).
We have also added the following screening parameters to ensure that the strategy is a winning one:
Price-to-Sales = Bot%10 (The lower the ratio the better, companies meeting this criteria are in bottom 10% of our universe of over 7,700 stocks with respect to this ratio). Price greater than 5 (as a stock trading below $5 will not likely create significant interest for most of the investors). Average Daily Volume greater than 100,000 shares over the last 20 trading days (Volume has to be significant to ensure that these are easily traded). Market value ($ mil) = Top #3000 (This gives us stocks that are the top 3000 in terms of market capitalization). Com/ADR/Canadian= Com (This takes out the ADR and Canadian stocks).
Here are five of the 10 stocks that made it through the screen:
Avis Budget Group ( CAR Quick Quote CAR - Free Report) carries a Zacks Rank #3 (Hold), currently and is based in Parsippany, N.J. The company operates as a leading vehicle rental operator in North America, Europe and Australasia with average rental fleet of nearly 650,000 vehicles. The Zacks Consensus Estimate for 2021 earnings has increased 49.5% in the past 60 days. Diebold Nixdorf ( DBD Quick Quote DBD - Free Report) is a provider of connected commerce solutions to financial institutions. This currently Zacks #3 Ranked Ohio-based company provides automatic teller machines plus financial and point-of-sale services. The Zacks Consensus Estimate for 2021 earnings has been revised 20.9% upward over the past 60 days. Echo Global Logistics ( ECHO Quick Quote ECHO - Free Report) is a leading provider of technology-enabled transportation and supply-chain management services. The company currently has a Zacks Rank #2. This Chicago-based company delivered a positive earnings surprise in three of the trailing four quarters, lagging estimates on one occasion. The average beat is 25.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. American Axle & Manufacturing Holdings ( AXL Quick Quote AXL - Free Report) is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. The company currently has a Zacks Rank of 3. The Zacks Consensus Estimate for 2021 earnings has moved 50% north over the past 7 days. Century Aluminum Company ( CENX Quick Quote CENX - Free Report) is engaged in the production of primary aluminum in the United Sates and Iceland. This presently #3 Ranked company delivered a positive earnings surprise in three of the trailing four quarters and missed estimates just once. The average beat is 36.3%. Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today. 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