The debt-ceiling bill, which was signed into law by President Joe Biden earlier this month, has not only averted a major debt crisis but also seems to have infused life into the U.S. equity markets. The stellar job growth witnessed in May is another positive as far as economic health is concerned. The Labor Department stated that employers added 339,000 new jobs in May, much higher than expected. Moreover, U.S. regional bank stocks are also moving north owing to expectations of a pause in interest rate hikes.
Investors would do well to take advantage of the rosy scenario by focusing on broker-favorite stocks like
American Airlines ( AAL Quick Quote AAL - Free Report) , Bread Financial ( BFH Quick Quote BFH - Free Report) , American Axle & Manufacturing Holdings ( AXL Quick Quote AXL - Free Report) , Boise Cascade Company ( BCC Quick Quote BCC - Free Report) and Abercrombie & Fitch ( ANF Quick Quote ANF - Free Report) . Here’s Why Broker-Advice Needs to be Followed
Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a lot more information on a company and its prospects than individual investors. They go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations.
As brokers often directly communicate with the top brass, they gain an in-depth understanding of what is happening in a particular company. Therefore, the question of their action being arbitrary does not arise. In fact, a rating upgrade or downgrade by brokers has the potential to influence the price of the stock.
A rating upgrade often leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade. In view of the above attributes, broker action should be relied on by individual investors, in their quest to form a winning portfolio of stocks.
Formulating a Winning Portfolio
We have designed a screener to arrive at stocks based on improving analyst recommendation and upward earnings estimate revisions over the last four weeks. However, considering only these factors does not make our strategy foolproof as the top line has not been considered.
Actually, according to many market watchers, a top-line outperformance is more creditable for a company than a mere earnings outperformance. To address top-line concerns, we have included the price/sales ratio in our screener 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:
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 Zacks Consensus Estimate for AAL’s 2023 earnings has been revised 12.76% upward. American Airlines currently carries a Zacks Rank #3 (Hold).
Bread Financial, based in Columbus, OH, continues to benefit from data-driven marketing strategies. Solid receivables growth in Card Services should drive its top line. Acquisitions and divestitures will aid the company in growing inorganically and expanding its international footprint.
Over the past 60 days, the Zacks Consensus Estimate for BFH’s 2023 earnings has been revised 21.54% upward. Bread Financial currently carries a Zacks Rank #3.
American Axle’s significant strides and collaborations in the electric drive space bode well for its top- and bottom- line growth. Efforts aimed at diversifying its business, products and customer base are generating impressive results for the company.
American Axle has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in three of the last four quarters (missing the mark on the other occasion). AXL currently carries a Zacks Rank #3.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids through a network of approximately 850 stores across North America, Europe, Asia and the Middle East.
The company stated recently that its brands performed well in the holiday season. Abercrombie, currently sporting a Zacks Rank #1 (Strong Buy), is working toward rationalizing its store base by reducing its dependence on underperforming tourist-driven locations. The Zacks Consensus Estimate for current-year earnings has increased 32.87% over the past 60 days. You can see
the complete list of today’s Zacks #1 Rank stocks here . Boise Cascade Company: Based in Boise, ID, this company makes wood products and distributes building materials in the United States as well as Canada. Although BCC acknowledges that the industry will face challenges during 2023, given the current economic uncertainties and weaker near-term demand for new residential construction, it remains well-positioned to execute the growth initiatives started in 2022.
Boise Cascade, currently carrying a Zacks Rank #3, has also been increasing commodity offerings that will instill growth in the existing and underserved markets, and across its entire national footprint. The Zacks Consensus Estimate for current-year earnings has increased 5.61% over the past 60 days.
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: https://www.zacks.com/performance .