With inflation being sky-high in the United States, the Fed adopted a hawkish stance to reduce prices. After hiking the benchmark interest rate by 25, 50 and 75 basis points in March, May and June, respectively, the Federal Reserve officials raised interest rates by another 75 basis points in July, in a desperate bid to tame inflation.
Rising energy and food prices apart, supply-chain disruptions are rendering stock market volatility. Supply-demand imbalance is a major headwind in the present scenario. The S&P 500, the tech-heavy Nasdaq and the Dow Jones Industrial Average have declined in double-digits on a year-to-date basis.
However, this unstable scenario in no way implies that investors should shun equities. In fact, broker-friendly stocks like
C.H. Robinson Worldwide ( CHRW Quick Quote CHRW - Free Report) , Bunge Limited ( BG Quick Quote BG - Free Report) , American Airlines ( AAL Quick Quote AAL - Free Report) , Bread Financial ( BFH Quick Quote BFH - Free Report) and AutoNation ( AN Quick Quote AN - Free Report) should be on investors’ watch list. Why Broker Advice is the Need of the Hour
Brokers, irrespective of their types (sell-side, buy-side or independent), undertake thorough research of the stocks in their coverage. They go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations. Therefore, the brokers’ opinion can be a valuable guide for investors.
Since brokers indulge in thorough research, the question of their actions being arbitrary does not arise. Estimate revisions also serve as an important pointer regarding the price of a stock. In fact, northbound estimates normally lead to stock price appreciation and vice versa.
One of the well-accepted investment strategies is to maintain a diversified portfolio to generate handsome returns, irrespective of the market conditions. For instance, in the face of extremely low oil prices, analysts adopt a bullish stance on airline stocks and raise estimates. Naturally, adding such stocks to one’s portfolio in such a scenario might prove to be a winning strategy.
Similarly, analysts might turn bearish and trim estimates, thus downgrading a stock, following adverse events like lackluster earnings or a pipeline failure (for a biotech player). Consequently, investors would want to get rid of such stocks from their portfolio on the basis of broker advice.
To take care of the earnings performance, we designed a screen based on improving broker recommendations and upward estimate revisions over the last four weeks.
Do not Ignore the Top Line
However, designing a strategy based solely on the bottom line is unlikely to result in a winning approach. Actually, according to many market watchers, a revenue beat is more creditable for a company than a mere earnings outperformance. To address top-line concerns, we included in our screen the price/sales ratio, which serves as a strong complementary valuation metric.
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 made it through the screen:
C.H. Robinson Worldwide, currently carrying a Zacks Rank #2 (Buy), operates as an asset-light logistics player. The improving freight scenario in the United States is aiding this Minnesota-based freight broker. Efforts to control costs also bode well. Measures to reward CHRW's shareholders instill further confidence in the stock.
C.H. Robinson has a pleasant earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark in the remaining one). CHRW has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 1% upward over the past 60 days.
You can see
the complete list of today's Zacks #1 Rank (Strong Buy) stocks Bunge Limited: Headquartered in St. Louis, MO, Bunge operates as an agribusiness firm, delivering essential food, feed and fuel across the globe. BG is reportedly the world’s leader in oilseed processing, and a leading producer and supplier of specialty plant-based oils and fats.
BG delivered a trailing four-quarter earnings surprise of 69.7%, on average. It has a long-term earnings growth expectation of 6.7% and a Zacks Rank #3 (Hold) at present.
American Airlines is based in Fort Worth, TX. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL. However, high fuel costs are hurting the bottom line.
Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2022 earnings being revised 19.2% upward. AAL currently carries a Zacks Rank of 3.
Bread Financial iscurrently Zacks #3 Ranked. Organic growth, higher average loan balances, improved loan yields and a solid cash position, reflecting balance sheet strength, are key positives for BFH.
Bread Financial has an encouraging earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark in the remaining one), the average surprise being 58.7%.
AutoNation: Incorporated in Delaware in 1991, AutoNation is the largest automotive retailer in the United States. AN’s wide dealer network, aggressive store expansion efforts, brand extension strategy and alliances are praiseworthy.
AutoNation currently has a Zacks Rank #3. Over the past 60 days, the stock has seen the Zacks Consensus Estimate for current-year earnings being revised 4% upward.
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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: https://www.zacks.com/performance