While designing a basket of stocks, investors are guided by their sole motive of generating handsome returns from the same. They are after all parking their hard-earned money into the stock market and never want to see it getting wasted, particularly in such uncertain times.
However, the task of building a winning portfolio is easier said than done as grasping the vagaries of the stock market is no cakewalk and one needs thorough knowledge to rake in profits from the space. This is where some guidance comes in handy. To get proper assistance, investors often fall back on expert advice while arriving at their investment decision (buy, sell or hold). The exponents in the field of investing are brokers. This is because brokers have at their disposal a lot more information on a company and its prospects than individual investors.
Brokers, irrespective of their types (sell-side, buy-side or independent), embark on a detailed research of the stocks covered by them. They go through minute nitty-gritty of the publicly available financial documents apart from attending company conference calls and other presentations. Therefore, the opinion of brokers can act as a valuable guide for investors.
Since brokers meticulously follow the stocks in their coverage, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. Thus, their estimate revisions serve as an important pointer regarding the price of a stock.
For example, an earnings outperformance by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings often lead to stock price depreciation. Investors tend to be guided by the direction of estimate revisions and stock movement while formulating their investment strategy.
Making the Most of Broker Opinions
The above write-up clearly suggests that by following broker actions, one can arrive at a lucrative portfolio of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on improving analyst recommendations and upward earnings estimate revisions 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 included as a key parameter. The price/sales ratio takes care of the company’s top line, making the strategy highly effective.
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 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 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:
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, the company, presently sporting a Zacks Rank #1 (Strong Buy), has seen the Zacks Consensus Estimate for 2021 earnings being revised 55.9% upward. You can see the complete list of today’s Zacks #1 Rank 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 last four quarters, the average being 302%. Beazer Homes USA ( BZH Quick Quote BZH - Free Report) , currently sporting a Zacks Rank of 1, designs, builds and sells single family homes. The Zacks Consensus Estimate for current-year earnings has moved 36.4% up over the past 60 days. The company’s expected earnings growth rate for the current year is 58.7%. The Children's Place ( PLCE Quick Quote PLCE - Free Report) : This children's specialty apparel retailer is consistently making investments to upgrade its omni-channel capabilities as part of its digital transformation strategy. This presently Zacks #1 Ranked stock’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters (lagging estimates in the remaining quarter), the average beat being 217.2%. Century Communities ( CCS Quick Quote CCS - Free Report) : The company, currently a #1 Ranked player, is a home-building and construction company. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 41% upward over the past 60 days.
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. 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 .