The vagaries of a stock market always keep investors on tenterhooks. This is because its unpredictable behavior is never easy to fathom in advance. Considering this scenario of uncertainty, individual investors always find it difficult to design a winning portfolio of stocks without proper guidance. Consequently, advice of “experts” in this field is much sought after by those who intend to park their hard-earned money on stocks.
The experts in the investing world are brokers. Generally, three types of brokers (sell-side, buy-side and independent) are present in the investment space with sell-side analysts being the most common coterie.
All kinds of brokers indulge in a thorough research on the stocks under their coverage. As brokers communicate directly with companies, they have a deeper understanding of them. They utilize their deep insight into the overall industry and economy to analyze the fundamentals of a company in detail.
As part of their study, they attend company conference calls, interview management personnel and minutely scrutinize the company’s publicly available documents among other things. They even interact with customers to comprehend their likes and dislikes about the products and services offered by the company.
Since brokers indulge in a thorough exploration, there can be no doubts about their actions being arbitrary/out of the blue. The direction of the estimate revisions serves as an important pointer regarding the price of a stock. In fact, a rating upgrade normally leads to stock price appreciation and vice versa. Similarly, the price may plummet following a rating downgrade.
Naturally, when investors see brokers revising their estimates or recommending a stock, they often assume that there should be something worthy of the stock that attracted analysts’ attention.
Framing a Winning Strategy
The above write-up clearly suggests that by following brokers’ strategic actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on upbeat analyst recommendations and northward revisions of earnings estimates over the past 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 parameter to determine a promising pick. The price/sales ratio takes care of the company’s top line, making the strategy 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 four 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 for weeks for the upcoming quarter.
To ensure that the strategy is a winning one, covering all bases, we have added the following screening parameters:
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: A stock trading below $5 will not likely create significant interest for most investors. Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded. Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000 if one judges by market capitalization. Com/ADR/Canadian= Com: This takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that passed the screen test. made it through the screen:
Ford Motor Company ( F Quick Quote F - Free Report) : The Dearborn, MI-based company designs, manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles and Lincoln luxury vehicles. The company, currently carrying a Zacks Rank #2 (Buy), also provides financial services. Ford’s earnings surpassed the Zacks Consensus Estimate in two of the last four quarters (missing the mark in the other two). The average beat is 27%. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Bed Bath & Beyond ( BBBY Quick Quote BBBY - Free Report) is an omni-channel retailer, offering top-quality and differentiated products, services and solutions. The company, currently carrying a Zacks Rank of 2, sells a variety of domestic merchandise and home furnishings. Bed Bath & Beyond’s expected earnings growth rate for the current quarter is in excess of 100%. Bunge Ltd. ( BG Quick Quote BG - Free Report) operates as an agribusiness and food company worldwide. This currently Zacks Rank #1 stock has witnessed the Zacks Consensus Estimate for current-year earnings being revised 62.9% upward over the past 60 days. Cross Country Healthcare ( CCRN Quick Quote CCRN - Free Report) provides talent management and other consultative services for healthcare clients in the United States. The company is currently Zacks #2 Ranked. The Zacks Consensus Estimate for current-year earnings has moved 15.4% north over the past 60 days. Bloomin' Brands ( BLMN Quick Quote BLMN - Free Report) owns and operates casual, upscale casual and fine-dining restaurants in the United States and internationally. The company currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for next-year earnings has been revised 35% upward over the past 60 days.
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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance