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5 Stocks to Watch Out for Following Upgrade by Analysts

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The year 2020, which is on the last lap, has not been easy for anyone and investors are no exception. The coronavirus-induced uncertainty was enough to send even the steadiest of investors into a tizzy, thereby keeping them on the edge. Although talks about a new COVID strain might add to this chaos, the fact that lawmakers in the United States recently reached a consensus on a $900-billion stimulus package is expected to boost the economy.

Investors would like to make most of this new-found enthusiasm by designing a promising portfolio of stocks. However, the task to select the prospective winners is certainly not a cakewalk for individual investors without proper guidance from experts in the investment world.

Who are the Experts and Why?

The experts in the investing realm 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 sort.

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 the same. They utilize their profound 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. The direction of their estimate revisions serves as a key determinant of the stock price. 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 special about the stock that attracted analysts’ attention.

Framing a Winning Strategy

The above write-up clearly suggests that brokers’ opinion should act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock. Keeping this in mind, we designed a screen to shortlist stocks based on upbeat analyst recommendations and northward earnings estimate revisions 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 ascertain a lucrative 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 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 passed the screen test:

New York-based Macy’s (M - Free Report) deals in a wide range of merchandise including men’s, women’s and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods. Most stores are located at urban or suburban sites, principally in densely populated areas across the United States. The company, currently carrying a Zacks Rank #3 (Hold), has an excellent earnings surprise record. Its bottom line outshined the Zacks Consensus Estimate in each of the trailing four quarters, the average being 38.5%.

Bed Bath & Beyond (BBBY - Free Report) is a leading operator of specialty retail stores in the United States and Canada. The stock, currently carrying a Zacks Rank of 3, has seen the Zacks Consensus Estimate for current-quarter earnings being revised 10.5% upward over the past 30 days.

Headquartered in New York, ABM Industries (ABM - Free Report) is a provider of integrated facility solutions in the United States and internationally. The stock, currently carrying a Zacks Rank #2 (Buy), has seen the Zacks Consensus Estimate for current-year earnings being revised 3.9% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bunge Limited (BG - Free Report) operates as an agribusiness and food company in the United States. The Zacks Consensus Estimate for this presently Zacks #1 Ranked stock’s current-year earnings has increased 88.8% over the past 60 days.

The Children’s Place (PLCE - Free Report) , currently carrying a Zacks Rank of 2, is the largest pure-play children’s specialty apparel retailer in North America. The expected earnings per share growth rate (next 3-5 years) for this apparel retailer is currently pegged at 8%.

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.

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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: