The Q4 earnings season is in its last leg. The emerging picture suggests improvement from the earlier quarters of 2020. Per our most recent
Earnings Outlook, 79.3% of the S&P 500 companies to have reported have come up with better-than-expected earnings per share for the December quarter. This is highly encouraging, particularly in the current coronavirus-scarred scenario. Notably, an earnings beat generally leads to stock-price appreciation.
Given this backdrop, investors would like to add outperformers to their portfolios to yield impressive returns. However, with a plethora of stocks available at any particular point of time, the task of selecting the right stocks is not easy for individual investors. Choice of improper stocks can adversely impact his/her returns, thereby ruining the very objective of investing the hard-earned money in the highly unpredictable stock market.
What is the Way Forward?
To avoid the above predicament, the opinion of brokers is highly valued by investors as they have a clear insight into the nitty-gritties of the investment world. Brokers thoroughly scrutinize the publicly-available financial documents, apart from attending company conference calls and other presentations. Of the three types of brokers/analysts (sell-side, buy-side and independent) present in the investment world, sell-side analysts are the most common.
Brokers revise their earnings estimates after carefully examining the pros and cons of an event for the concerned stock. Estimates can move north for a number of reasons — favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario. Similarly, lackluster earnings often lead to stock-price depreciation. Investors tend to be guided by the direction of estimate revisions and stock price, while formulating their investment strategies.
Making the Most of Broker Opinion
The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on 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 has been included. 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 in the past four 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 the bottom 10% of our universe of more than 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 made it through the screen:
Atlas Air Worldwide Holdings ( AAWW Quick Quote AAWW - Free Report) : The company is a provider of outsourced aircraft and aviation operating services. Atlas Air gets an impetus from strong demand for airfreight in the coronavirus-ravaged scenario. Over the past 60 days, this presently Zacks #3 Ranked (Hold) company has seen the Zacks Consensus Estimate for 2021 being revised 17.3% upward. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Cross Country Healthcare ( CCRN Quick Quote CCRN - Free Report) : The company, currently carrying a Zacks Rank #2 (Buy), is a national leader in providing innovative healthcare workforce solutions and staffing services. It reported better-than-expected earnings per share in each of the past four quarters, the average beat being nearly 297%. Consol Energy ( CEIX Quick Quote CEIX - Free Report) , carrying a Zack Rank of 3 currently, is a producer and exporter of bituminous coal. The Zacks Consensus Estimate for current-year earnings has been revised upward in excess of 100% over the past 60 days.
Based in Berwyn, PA,
Triumph Group ( TGI Quick Quote TGI - Free Report) is a well-known supplier of a wide range of aircraft parts including hydraulic, mechanical and electromechanical control systems, aircraft and engine accessories, structural components, auxiliary power units and avionics and aircraft instruments. The stock carries a Zacks Rank #2, currently. The Zacks Consensus Estimate for ongoing-year earnings has moved 69.4% north in the past 60 days. Builders FirstSource ( BLDR Quick Quote BLDR - Free Report) : Based in Dallas, TX, the company supplies and manufactures a range of building materials and components as well as provides construction services. The stock, carrying a Zacks Rank #3, at present, has seen the Zacks Consensus Estimate for 2021 earnings being revised 8.3% upward in 60 days’ time.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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 .