The market seems in a good shape despite the persistence of coronavirus woes. The three major stock indexes, namely the Dow, the S&P 500 and the Nasdaq Composite have been rallying of late. In a bid to turn this bullish scenario to their advantage, investors would like to design a winning portfolio of stocks.
However, with a plethora of stocks flooding the market at any point in time, pinpointing winning stocks is by no means an easy task for individual investors. Thus, in absence of proper guidance, identifying a winning stock is like searching ‘a needle in a haystack’ for an investor. The correct direction or advice in this context comes from brokers, who are deemed experts and are equipped with vast knowledge on the field of investment.
Since brokers recommend (buy, sell or hold) a stock only after thoroughly analyzing the respective company’s nitty-gritties, it is but natural for investors to be led by broker-ascertained estimate revisions while determining their choice of stock The estimate revisions serve as an important indicator regarding the stock price performance. In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the share may plummet following a rating downgrade.
The above write-up clearly suggests that by following brokers’ business acumen and a keen eye for detail, one can arrive at a lucrative portfolio of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on an improving analyst recommendation 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 key criterion for shortlisting the best bets. The price/sales ratio takes care of the company’s top line, making the strategy foolproof.
# (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 cleared he screen:
BlueLinx Holdings (BXC - Free Report) is the largest distributor of building products in the United States. The stock sports a Zacks Rank #1 (Strong Buy), currently. Earnings of the company surpassed the Zacks Consensus Estimate in two of the last four quarters, missing the mark in the other two. The average beat is 15.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Diebold Nixdorf (DBD - Free Report) is a provider of connected commerce solutions to financial institutions. The Zacks Consensus Estimate for 2021 earnings has been revised 50.8% upward over the past 60 days. The stock carries a Zacks Rank #3 (Hold), currently.
ArcBest Corporation (ARCB - Free Report) provides freight transportation services and solutions. This currently Zacks #1 Ranked stock has seen the Zacks Consensus Estimate for 2020 earnings being revised upward in excess of 100% over the past 60 days.
Community Health Systems (CYH - Free Report) is one of the largest publicly traded hospital companies in the United States and a leading operator of general acute care hospitals and outpatient facilities in communities across the country. The stock, currently carrying a Zacks Rank of 3, surpassed on earnings in three of the trailing four quarters (missing the mark on a single occasion). The average beat is 50.1%.
Clearwater Paper Corporation (CLW - Free Report) : The company, presently carrying a Zacks Rank #2 (Buy), produces pulp and paperboard at multiple facilities across the United States. The Zacks Consensus Estimate for 2020 earnings has been revised 75.7% upward over the past 60 days.
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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