It is a well-documented fact that the equity market is not easy to grasp. This is because of the complexities and uncertainties associated with the investment world. However, investors shelling out their hard-earned money into the stock market would always look forward to raking in handsome profits. Understandably, the task of designing a winning portfolio of stocks is anything but a cakewalk for individual investors in absence of proper knowhow.
The complexities associated with the stock market apart, the paucity of time available makes it next to impossible for investors to keep track of market movements to identify the opportune moment(s) for buying or offloading a particular stock to maximize returns. Therefore, guidance from proper channels is a must.
Time for Some Broker Advice
The requisite guidance to build a lucrative portfolio comes from brokers. Brokers invest a lot of time in researching stocks under their coverage. Such investment specialists attend conference calls, company presentations and also interact with the management.
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 guide as far as fixing the target price of stock (s) is concerned. Given their thorough understanding of the stock market as highlighted in this write-up, it is prudent for investors to pay heed to broker advice to plan a promising portfolio.
Of the three types of brokers (sell-side, buy-side and independent) present, sell-side analysts are the most common. They are employed by various brokerage firms to provide an unbiased opinion on stocks. Meanwhile, buy-side analysts are employed by hedge funds, mutual funds and others while independent analysts directly sell their reports to investors.
Coming Up With a Winning Strategy
We designed a screen to shortlist stocks based on improving analyst recommendations and upward revisions of 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 also included. The price/sales ratio takes care of the company’s top line, thereby 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 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 ADR and Canadian stocks).
Here are five of the 10 stocks that made it through the screen:
ABM Industries Incorporated ( ABM Quick Quote ABM - Free Report) : This integrated facility solutions provider, currently sporting a Zacks Rank #1 (Strong Buy), is focused on enriching its human-resources information, labor management and enterprise-resource planning systems. The stock has seen the Zacks Consensus Estimate for current-quarter earnings move 30.5% north over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here. Cross Country Healthcare ( CCRN Quick Quote CCRN - Free Report) is a national leader in providing innovative healthcare workforce solutions and staffing services. The company currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings has moved 106.1% 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 current-quarter earnings has been revised 70.6% upward over the past 60 days. CoreMark Holding Company ( CORE Quick Quote CORE - Free Report) is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. The company currently has a Zacks Rank of 3. its expected earnings growth rate for the current year is 4.2%. Camping World Holdings ( CWH Quick Quote CWH - Free Report) operates as a recreational vehicle and outdoor retailer. This Lincolnshire, IL-based company’s earnings for 2021 are projected to increase 20.5%. The stock, currently carrying a Zacks Rank #2, beat on earnings in each of the last four quarters.
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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance