The Q2 reporting cycle, which is almost over, has unveiled an extremely rosy picture. With only a handful of companies left to report, the season is expected to end on a high, displaying significant earnings growth. A sizable number of companies have reported better-than-expected earnings this earnings season.
Generally, an earnings beat leads to stock price appreciation. Investors like to add outperformers as they strive to design a portfolio of stocks that will fetch them handsome returns.
However, the task is easier said than done. This is because the investing world is fraught with uncertainties and stock prices are sensitive to recent developments. Additionally, the same group of stocks may not work under all circumstances.
For example, airline stocks may benefit from declining oil prices but may fall out of favor in the event of oil prices moving up. One of the well-accepted strategies to brave market uncertainties is to maintain a well-diversified (i.e. include stocks from different industries) portfolio.
Therefore, selecting the right stocks involves a lot of research and cannot be done arbitrarily. With time at a premium these days, it is next to impossible for investors to go through the extensive process. Given this backdrop, it is in the best interest of investors to seek guidance from “experts in the field”. The concerned experts are brokers.
Such investment specialists attend conference calls, company presentations and also interact with management. Brokers revise their earnings estimates after carefully examining the pros and cons of an event for the concerned stock. Naturally, their stock related actions (upgrade or downgrade) serve as an invaluable guide as far as fixing target price of stock(s) is concerned as they have a lot more information on a company and its prospects than individual investors. In fact, a rating upgrade normally leads to stock price appreciation and vice versa.
The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions to earnings estimates over the last four weeks. Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it has been included. The price/sales ratio takes care of the company’s top line, making the strategy foolproof.
# (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 - Free 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 record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 83%. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Camping World Holdings, Inc. (CWH - Free Report) , based in Lincolnshire, U.S., is a provider of services, protection plans, products and resources for recreational vehicle enthusiasts. This Zacks Rank #2 (Buy) company has an impressive record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 43.5%.
Town Sports International Holdings, Inc. (CLUB - Free Report) is an owner and operator of fitness clubs across the Mid-Atlantic and North Eastern regions of the U.S. This Zacks Rank #2 company has an impressive record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 52.5%.
Diplomat Pharmacy, Inc. (DPLO - Free Report) , headquartered in Flint, MI, focuses on medication management programs for people suffering from complex chronic diseases. This Zacks Rank #3 company has reported earnings beat in two of the last four quarters, with an average positive surprise of 8.7%.
Global Brass and Copper Holdings, Inc. (BRSS - Free Report) is a converter, fabricator, processor and distributor of specialized non-ferrous products, including a range of sheet, strip, foil, rod, tube and fabricated metal component products. The expected earnings per share growth rate for the company over the next three-five years stands at a healthy 10%.
You can get the rest of the stocks meeting these criteria 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.
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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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