The investment world is fraught with uncertainties and securing a place in it is definitely a tall task. Investors put in their hard-earned money into the market with the sole objective of deriving handsome returns.
With a plethora of stocks flooding the market at a particular point of time, one needs to have a thorough understanding of the nitty gritty of investing to select appropriate stocks for his/her portfolio..
This is where some guidance comes in handy. To get proper guidance, investors often fall back on expert advice while arriving at their investment decision (buy, sell or hold). The experts in the field of investing are brokers.
Broker Ratings – A Key Pointer
Generally, three types of brokers (sell-side, buy-side and independent) are present in the investment world, with sell-side analysts being most common. They are employed by various brokerage firms to provide unbiased opinion to investors on the stocks under their coverage after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors.
Analysts attend company conference calls/presentations and scrutinize every detail available publicly before advising investors about their course of action. Naturally, it is in the best interest of investors to pay heed to such well-researched information as they aim to generate maximum returns from their portfolio.
Earnings Estimate Revisions
Since brokers indulge in thorough research, the question of their actions being arbitrary/out of the blue does not arise. Estimate revisions also serve as an important pointer regarding the price of a stock. In fact, an increase in estimates 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 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 recommendation and upward estimate revisions over the last four weeks.
Top Line an Important Aspect As Well
To design a winning strategy, it is not wise 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.
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 eliminates 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 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 each of the last four quarters by an average of 83.1%. The stock carries a Zacks Rank #3 (Hold). Big 5 Sporting Goods Corp. BGFV 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 2017 has jumped 12 cents to $1.04 per share over the last seven days for this Zacks Rank # 1 (Strong Buy) stock. Youcan see . the complete list of today’s Zacks #1 Rank stocks here Builders FirstSource, Inc. BLDR manufactures and supplies building materials, manufactured components, and construction services to professional contractors, sub-contractors, and consumers in the U.S. 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 45.43%. The company carries a Zacks Rank #3.
Founded in 1947 in Maumee, OH,
The Andersons, Inc. (is a diversified company operating six different business segments, ranging from buying, selling and storing grain to leasing railcars and running retail stores catering to the latest home hardware needs. The Zacks Consensus Estimate for 2017 has jumped 10 cents to $2.02 per share over the last 30 days for this Zacks Rank # 2 (Buy) stock. ANDE Quick Quote ANDE - Free Report) Aegean Marine Petroleum Network Inc. ANW is a marine fuel logistics company that physically supplies and markets refined marine fuel and lubricants to ships in port and at sea. 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 12.34%. The stock carries a Zacks Rank #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 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.
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