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5 Broker-Favored Stocks to Watch as Inflation Woes Resurface
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The hotter-than-expected inflation reading for March has dashed hopes of a June interest rate cut by the Fed. Per data from the Labor Department, the consumer price index rose 0.4% sequentially in March, surpassing economists’ expectations. On a year-over-year basis, the Consumer Price Index rose 3.5% in March, beating the consensus estimate of a 3.4% increase. Moreover, the March rise, following a 3.2% jump in February, was the highest since September 2023.
The unfavorable inflation data has led to a rise in volatility, as reflected by the high readings of Wall Street’s fear gauge, better known as the Cboe Volatility Index or VIX. Following three straight months of increases in inflation, it is natural to believe that rate cuts are not a possibility in the near term. Fears of a delayed rate cut may make the markets volatile for a long period.
However, this volatile scenario does not mean that investors should shy away from stocks. Broker-loved stocks like General Motors (GM - Free Report) , CVR Energy (CVI - Free Report) , Alaska Air Group (ALK - Free Report) , Alta Equipment Group (ALTG - Free Report) and Bread Financial (BFH - Free Report) are worth keeping on one’s radar for healthy returns despite this turbulence.
Why Broker Advice Holds Value
Brokers have a better understanding of stocks, deeper knowledge of the industry and a grasp of the broader economy. They scrutinize the company’s fundamentals and place them against the prevalent economic scenario to find out how the attractiveness or otherwise of a stock as an investment option.
Since brokers arrive at their recommendation (buy, sell or hold) on a stock after thoroughly analyzing the nitty-gritties associated with the company, it is advisable for investors to be guided by the direction of estimate revisions while deciding their course of action on a particular stock. The estimate revisions serve as an important pointer regarding the price of a stock. Estimates can move north for a number of reasons — favorable earnings performance, bullish guidance, product launch or any favorable macro scenario.
One of the well-accepted investment strategies is to maintain a diversified portfolio to generate handsome returns, irrespective of market conditions. For instance, in the face of extremely low oil prices, analysts 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 bullish strategy.
Formulating a Winning Portfolio
We have designed a screener to arrive at stocks based on improving analyst recommendations 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 credible 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 the 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).
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 criterion are in the bottom 10% of our universe of more than 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:
General Motors: Based in Detroit, MI, this is one of the world’s largest automakers. The company’s massive electric vehicle (EV) push is commendable. The automaker plans to roll out 30 fresh EV models by 2025-end. Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up 1.9%.
The Zacks Consensus Estimate for General Motors’s 2024 earnings indicates 17.2% growth from the 2023 actual. GM, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of roughly 20%, on average. GM shares have gained 22.1% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CVR Energy: Established in 2006, this is a holding company primarily involved in renewable energy, petroleum refining, marketing and nitrogen fertilizer manufacturing through its stake in CVR Partners. It is committed to developing renewable biofuels and actively participating in the energy transition to reduce carbon emissions.
CVI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 62.2%. The company currently carries a Zacks Rank of 3 (Hold). Shares of CVR Energy have gained 16.9% year to date.
Alaska Air: The company, based in Seattle, WA, is being aided by the uptick in air travel demand. The carrier’s shareholder-friendly attitude also bodes well.
Over the past 60 days, the Zacks Consensus Estimate for first-quarter 2024 earnings has been revised 9.9% upward. ALK currently carries a Zacks Rank #3.
Alta Equipment: This is an industrial and construction equipment company. ALTG, currently carrying a Zacks Rank #3, offers new and used industrial and construction products.
ALTG has expected revenue and earnings growth rates of 5.1% and 50%, respectively, for the current year. The company has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark on the other occasion) by an average of 130.27%.
Bread Financial: Based in Columbus, OH, the companycontinues 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 current-quarter earnings has inched up 0.3% over the past 90 days. Bread Financial currently carries a Zacks Rank #3.
You can get the rest of the stocks on this list by signing up now for a 2-week free trial to the Research Wizard stock picking and backtesting software. You can also create your own strategies and test them first before making investments.
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.
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.
Image: Bigstock
5 Broker-Favored Stocks to Watch as Inflation Woes Resurface
The hotter-than-expected inflation reading for March has dashed hopes of a June interest rate cut by the Fed. Per data from the Labor Department, the consumer price index rose 0.4% sequentially in March, surpassing economists’ expectations. On a year-over-year basis, the Consumer Price Index rose 3.5% in March, beating the consensus estimate of a 3.4% increase. Moreover, the March rise, following a 3.2% jump in February, was the highest since September 2023.
The unfavorable inflation data has led to a rise in volatility, as reflected by the high readings of Wall Street’s fear gauge, better known as the Cboe Volatility Index or VIX. Following three straight months of increases in inflation, it is natural to believe that rate cuts are not a possibility in the near term. Fears of a delayed rate cut may make the markets volatile for a long period.
However, this volatile scenario does not mean that investors should shy away from stocks. Broker-loved stocks like General Motors (GM - Free Report) , CVR Energy (CVI - Free Report) , Alaska Air Group (ALK - Free Report) , Alta Equipment Group (ALTG - Free Report) and Bread Financial (BFH - Free Report) are worth keeping on one’s radar for healthy returns despite this turbulence.
Why Broker Advice Holds Value
Brokers have a better understanding of stocks, deeper knowledge of the industry and a grasp of the broader economy. They scrutinize the company’s fundamentals and place them against the prevalent economic scenario to find out how the attractiveness or otherwise of a stock as an investment option.
Since brokers arrive at their recommendation (buy, sell or hold) on a stock after thoroughly analyzing the nitty-gritties associated with the company, it is advisable for investors to be guided by the direction of estimate revisions while deciding their course of action on a particular stock. The estimate revisions serve as an important pointer regarding the price of a stock. Estimates can move north for a number of reasons — favorable earnings performance, bullish guidance, product launch or any favorable macro scenario.
One of the well-accepted investment strategies is to maintain a diversified portfolio to generate handsome returns, irrespective of market conditions. For instance, in the face of extremely low oil prices, analysts 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 bullish strategy.
Formulating a Winning Portfolio
We have designed a screener to arrive at stocks based on improving analyst recommendations 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 credible 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 the 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).
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 criterion are in the bottom 10% of our universe of more than 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:
General Motors: Based in Detroit, MI, this is one of the world’s largest automakers. The company’s massive electric vehicle (EV) push is commendable. The automaker plans to roll out 30 fresh EV models by 2025-end. Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up 1.9%.
The Zacks Consensus Estimate for General Motors’s 2024 earnings indicates 17.2% growth from the 2023 actual. GM, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of roughly 20%, on average. GM shares have gained 22.1% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CVR Energy: Established in 2006, this is a holding company primarily involved in renewable energy, petroleum refining, marketing and nitrogen fertilizer manufacturing through its stake in CVR Partners. It is committed to developing renewable biofuels and actively participating in the energy transition to reduce carbon emissions.
CVI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 62.2%. The company currently carries a Zacks Rank of 3 (Hold). Shares of CVR Energy have gained 16.9% year to date.
Alaska Air: The company, based in Seattle, WA, is being aided by the uptick in air travel demand. The carrier’s shareholder-friendly attitude also bodes well.
Over the past 60 days, the Zacks Consensus Estimate for first-quarter 2024 earnings has been revised 9.9% upward. ALK currently carries a Zacks Rank #3.
Alta Equipment: This is an industrial and construction equipment company. ALTG, currently carrying a Zacks Rank #3, offers new and used industrial and construction products.
ALTG has expected revenue and earnings growth rates of 5.1% and 50%, respectively, for the current year. The company has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark on the other occasion) by an average of 130.27%.
Bread Financial: Based in Columbus, OH, the companycontinues 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 current-quarter earnings has inched up 0.3% over the past 90 days. Bread Financial currently carries a Zacks Rank #3.
You can get the rest of the stocks on this list by signing up now for a 2-week free trial to the Research Wizard stock picking and backtesting software. You can also create your own strategies and test them first before making investments.
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