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These 5 Stocks Look Attractive Following Broker Upgrades

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With uncertainty and volatility plaguing the U.S. equity markets, it is very hard for individual investors to design a winning portfolio of stocks.  No one wants to see their hard-earned money go down the drain. Moreover, with multiple stocks flooding the market from every possible corner, at any point of time, it is next to impossible to design one’s portfolio with appropriate stocks in the absence of guidance from experts who are equipped with proper knowhow about the market. The experts in the field of investing are the brokers.

We believe that investors should include broker-favorite stocks like American Airlines (AAL - Free Report) , Delek US Holdings (DK - Free Report) , Builders FirstSource (BLDR - Free Report) , Asbury Automotive (ABG - Free Report) and Foot Locker (FL - Free Report) in their watchlist.

Brokers, irrespective of their types (sell-side, buy-side or independent), undertake thorough research of the stocks covered by them. They have at their disposal a lot more information on a company and its prospects than individual investors.  To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations.  Consequently, the opinion of brokers should act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Movement of Earnings Estimates: An Invaluable Pointer

Since brokers follow the stocks in their coverage minutely, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. In fact, a rating upgrade or downgrade by brokers has the potential to immediately influence the price of the stock.

Given the expertise of brokers in investment matters, it is natural for investors to believe that there is a solid reason/logic behind brokers improving their recommendation on a particular stock. In fact, a rating upgrade generally leads to stock price appreciation and vice versa. Estimates can move north for a number of reasons — favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario.

To take care of the earnings performance, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the last four weeks.

Ignore Top line at Your Own Peril

To design a winning strategy, it is not prudent to consider only the bottom line only. In fact, according to some market watchers, a top-line outperformance is more creditable for a stock than a mere earnings beat under some circumstances. Therefore, to make our strategy full-proof, one needs to address top-line concerns as well. We have considered the price/sales ratio, which serves as a strong complementary valuation metric, for screening stocks.

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.

Com/ADR/Canadian= Com: This takes out the ADR and Canadian stocks.

Here are five of the 10 stocks that passed the screen test:

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 69.6% upward. AAL currently carries a Zacks Rank #3 (Hold).

Brentwood, TN-based Delek US Holdings is an independent refiner, transporter and marketer of petroleum products. DK’s extensive downstream operations within the Permian Basin grant it a fairly significant competitive edge over its peers in the long term.

Delek US Holdings currently carries a Zacks Rank #3. The Zacks Consensus Estimate for current-quarter earnings has improved 5.3% over the past 60 days.

Builders FirstSource: Dallas, TX-based BLDR manufactures and supplies building materials. Builders FirstSource has been benefiting from its focus on cost synergies, strategic acquisition and robust demand from solid housing and repair and remodeling activities.

Builders FirstSource is currently Zacks #3 Ranked. The Zacks Consensus Estimate for current-quarter earnings has improved 39.7% over the past 60 days.

Asbury: Asbury is one of the largest automotive retailers of new and used vehicles, and related services in the United States. The acquisition of Larry H. Miller Dealerships has bolstered Asbury’s regional footprint and will add nearly $5.7 billion in expected annualized revenues. ABG’s ambitious plan to generate $32 billion in revenues by 2025 instills optimism. The company’s end-to-end e-commerce platform—Clicklane—is on track to generate around $1 billion in sales in 2022 and $2.2 billion by the end of 2023.

Asbury carries a Zacks Rank #3 presently. ABG surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters. The average beat is 11.2%.

Foot Locker’s digital business has been performing well. Over the past few years, Foot Locker has been investing significantly to reinforce its digital presence and augment its direct-to-consumer operations.  Foot Locker is trying to improve its performance through operational and financial initiatives. 

Foot Locker carries a Zacks Rank #3 presently. FL surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, with the average beat being 11.2%.

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 backtest 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:






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