The decline in inflation bodes well for the U.S. economy. However, Fed Chair Jerome Powell has expressed doubts about whether the current level of monetary tightening is adequate to reduce inflation sustainably. This uncertainty implies that investors are eagerly awaiting signals of future interest rate decisions at the Fed’s meeting this month.
Amid this uncertainty, the uptick in U.S. consumer confidence in November is a promising development, especially given that the holiday season is unfolding. Given this topsy-turvy environment, paying heed to broker advice and keeping a tab on broker-favored stocks like
Brinker International ( EAT Quick Quote EAT - Free Report) , Cardinal Health ( CAH Quick Quote CAH - Free Report) , The Andersons ( ANDE Quick Quote ANDE - Free Report) , Avnet ( AVT Quick Quote AVT - Free Report) and Group 1 Automotive ( GPI Quick Quote GPI - Free Report) appears to be prudent. Why Broker- Opinion Holds Value
The experts in the field of investing are brokers, as they 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), undergo thorough research of the stocks covered by them. They go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations.
Since brokers indulge in thorough research, the question of their actions being arbitrary does not arise. Broker ratings are backed by sound logic. The direction of the estimate revisions serves as an important pointer regarding the price of a stock. In fact, a rating upgrade normally leads 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, brokers adopt a bullish stance on airline stocks and consequently raise estimates. Naturally, adding such stocks to one’s portfolio in such a scenario might prove to be a winning strategy. Similarly, they might turn bearish and trim estimates, thereby downgrading a stock following adverse events like lackluster earnings or pipeline failure (for a biotech player). Naturally, investors would look to get rid of such stocks from their portfolio, on the basis of broker advice.
To take care of the earnings performance, we have designed a screen based on improving analyst recommendations and upward estimate revisions over the last four weeks.
What About Revenues?
While we have talked about the bottom line in detail, the top line (revenue portion) cannot be ignored. Actually, according to many market watchers a revenue beat is more creditable for a company than a mere earnings outperformance. Therefore, we have included in our screen the price/sales ratio that 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.
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 criterion 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 made it through the screen:
Brinker International is one of the world's leading casual dining restaurant companies. Brinker International is unwavering in its commitment to enhancing customer engagement and boosting revenues through various sales-boosting strategies. These include optimizing the menu and fostering innovation, reinforcing its value proposition, improving food presentation, implementing effective advertising campaigns, optimizing kitchen systems and introducing an enhanced service platform.
The Zacks Consensus Estimate for Brinker International's current financial-year sales and earnings suggests growth of 5.1% and 26.2%, respectively, from the year-ago reported figure. EAT, which sports a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 233.6%, on average. You can see
. the complete list of today’s Zacks #1 Rank stocks here
Headquartered in Dublin, OH,
Cardinal Health is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. Cardinal Health’s diversified portfolio represents significant long-term opportunities. Further, the company follows an acquisition-driven strategy.
CAH, currently carrying a Zacks Rank of 2 (Buy), has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 15.7%.
Andersons operates in trade, renewables and plant nutrient sectors in the United States and internationally. The company’s acquisition of ACJ International, a pet food ingredient supplier, contributed to its recently reported third-quarter 2023 results. The buyout is in sync with ANDE’s strategy to grow in the premium pet food ingredient industry.
Backed by its strong cash flow, It is continuing to add to its core grain and fertilizer verticals, including a greater focus on renewables and opportunities in renewable diesel feedstocks. ANDE currently carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings has been revised 5.1% upward over the past 60 days.
Avnet is benefiting from robust demand for its products across Asia, Europe, the Middle East and Africa regions. Improvement in the Americas also served as a tailwind. Its continued focus on boosting IoT capabilities is helping it expand in the newer markets and win customers. Moreover, cost-saving efforts are aiding profitability.
Avnet, currently carrying a Zacks Rank of 3, has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 13.8%.
Group 1 Automotive: The Zacks Rank #3 company is one of the leading automotive retailers in the world, with operations primarily located in the United States and the UK.
GPI has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 7.3%. GPI shares have gained 20.7% over the past six months.
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.
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.