Proper guidance is the key to success in life. The same holds true for the investing world. With a deluge of stocks flooding the market, it is impossible for investors to arrive at winning stocks. Investors, after all, are putting their hard earned money into stocks and consequently their sole objective is to generate handsome returns out of their portfolio.
To attain this, it is prudent to design a portfolio in line with the advice rendered by the experts in the field of investing. These experts are brokers who are equipped with vast knowledge in the matter.
Why Should You Trust Broker Advice?
There are generally three types of brokers – sell-side, buy-side and independent. Of all the types, sell-side analysts are most prevalent in the investment world. Various brokerage firms employ them to provide unbiased opinion to investors after thorough analysis. Buy-side analysts are employed by hedge funds, mutual funds, and others while the independent ones simply sell their reports to investors. The bottom line is that brokers, irrespective of their types, engage in extensive research on stocks in their portfolios before arriving at their recommendation (s) (Buy, Sell or Hold).
Brokers not only scrutinize the publicly available financial documents but also attend company conference calls and other presentations. Given their vast knowledge in the field, it is prudent for investors to be guided by estimate revisions while taking investment decisions. The estimate revisions serve 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, 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 winning strategy. Similarly, analysts might trim estimates and downgrade a stock following adverse events like lackluster earnings or pipeline failure (for a biotech player). Unsurprisingly, investors would look to offload 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 recommendation and upward estimate revisions over the last four weeks.
Consider the Top Line as Well
However, designing a strategy based solely on the bottom line is unlikely to result in a winning strategy. Actually, according to many market watchers, a revenue beat is more creditable for a company than a mere earnings outperformance, especially in an environment of revenue weakness due to macroeconomic headwinds like a strong dollar or lackluster demand for travel (which will hurt travel-focused companies). To address top-line concerns, we have included in our screen the price/sales ratio which serves as a strong complementary valuation metric.
# (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 criteria are in 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:
Based in Columbus, OH, and founded in 1967, Big Lots, Inc. (BIG - Analyst Report) is a broad-line closeout retailer in the U.S. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, and Electronics & Accessories.The company has an impressive track with respect to earnings, having surpassed the Zacks Consensus Estimate in three of the last four quarters by an average of 8.02%. The stock carries a Zacks Rank #2 (Buy).
Big 5 Sporting Goods Corp. (BGFV - Analyst Report) is a sporting goods retailer in the western U.S., offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding, and in-line skating. The Zacks Consensus Estimate for 2016 has jumped 11 cents to 57 cents per share over the last three months for this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
Plains GP Holdings, L.P. (PAGP - Snapshot Report) , based in Houston, TX, is involved in the transportation, storage, terminalling, and marketing of crude oil and refined products. The Zacks Consensus Estimate for 2016 has jumped 19 cents to 83 cents per share over the last three months for this Zacks Rank #3 (Hold) stock.
Genco Shipping & Trading Ltd. (GNK - Snapshot Report) : This Zacks Rank #3 company is based in New York and engages in ocean transportation of drybulk cargoes worldwide. The company’s earnings per share for the current year are projected to grow at a healthy 30.5%.
Core-Mark Holding Company, Inc. (CORE - Snapshot Report) is one of the largest broad-line, full-service wholesale distributors of packaged consumer products to the convenience retail industry in North America. The Zacks Consensus Estimate for 2016 has jumped 4 cents to $1.44 per share over the last three months for this Zacks Rank #3 stock.
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.
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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.
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