The Q1 earnings season crossed the halfway mark with majority of the companies having already released their quarterly financial numbers. The picture that already emanated is pretty impressive with restrictions easing and economic activities picking up. A high proportion of companies reported better-than-expected earnings per share in the current reporting cycle.
Generally, an earnings beat by a company generally leads to an uptick in its stock price. Given this highly bullish backdrop, investors would like to add outperformers to their respective portfolios for healthy returns.
However, with a deluge of earnings reports flooding the market during the ongoing earnings season, pinpointing outperformers or well-performing stocks is by no means an easy task for individual investors. In absence of proper guidance, identifying a winning stock is akin to searching ‘a needle in a haystack’ for an investor. The expert advice in this respect comes from brokers who are deemed experts as they are equipped with vast knowledge about the investment world.
Of the three types of brokers/analysts (sell-side, buy-side and independent) present in the investment domain, sell-side analysts are most common. Various brokerage firms employ them to provide an unbiased opinion to investors after a thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors.
Brokers not only scrutinize the publicly available financial documents but also attend company conference calls and other presentations. Naturally, it is in the best interest of investors to pay heed to such carefully collected data and in-depth analyses as they aim to generate maximum returns from their portfolio. The estimate revisions serve as an important pointer regarding the price of a stock.
A Winning Strategy
We designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions of earnings estimates over the last four weeks. Also, since the price/sales ratio is a strong complementary valuation metric amid other accessible 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. Price-to-Sales = Bot%10:The lower the ratio, the better. Companies meeting this criterion are in the bottom 10% of our universe of over 7,700 stocks. Price greater than 5:A stock trading below $5 will not likely be of significant interest to most investors. Average Daily Volume greater than 100,000 shares over the last 20 trading days:Volume has to be significant to ensure that these are easily traded. Market value ($ mil) = Top #3000:This gives us stocks that are the top 3000 in terms of market capitalization.
Here are five of the 10 stocks that passed the screen:
Beazer Homes USA ( BZH Quick Quote BZH - Free Report) designs, builds and sells single family homes. The company currently sports a Zacks Rank # 1 (Strong Buy). Its earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average being 239%. You can see the complete list of today’s Zacks #1 Rank stocks here . AutoNation ( AN Quick Quote AN - Free Report) is the largest automotive retailer in the United States. The company currently sports a Zacks Rank of 1.The Zacks Consensus Estimate for current-year earnings has been revised 27.9% upward in 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 is currently Zacks #1 Ranked. Its earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average being 85.2%. Century Communities ( CCS Quick Quote CCS - Free Report) :This currently #1 Ranked Greenwood Village, CO-based company engages in the design, development, construction, marketing and the sale of single-family attached and detached homes. The company’s bottom line outpaced the Zacks Consensus Estimate in each of the last four quarters, the average being 69.9%.
Antero Resources Corporation ( AR Quick Quote AR - Free Report) is an independent explorer, primarily engaged in acquiring and developing natural gas, natural gas liquids and oil resources in the Appalachian Basin. Over the past 60 days, the Zacks Consensus Estimate for this presently Zacks Rank #2 (Buy) company has moved 66.7% north to 20 cents for the current quarter.
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.
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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.