The U.S. equity market has regained strength after Irma lost its intensity and caused lower-than-anticipated destruction in Florida. The fact that tensions between the United States and North Korea haven’t worsened also helped investors to breathe easy. In fact, major indices moved north following the positive developments.
Investors would now like to make the most of the bullish scenario and add stocks with potential to gain handsomely to their respective portfolios. Moreover, with the Q3 reporting cycle not too far away, potential outperformers are highly sought after. No one after all wants to see his/her hard-earned money go down the drains. In fact, maintaining a well-diversified portfolio (selecting stocks from different industries) is a tried and tested strategy to combat market uncertainties and generate handsome returns.
However, with a deluge of stocks flooding the market at any point of time, the task of designing one’s portfolio with promising stocks is by no means easy for individual investors. The time constraint that we all face these days makes the task harder in the absence of guidance from experts in the field. These experts are brokers. They are equipped with detailed knowledge about the investing space.
Since brokers arrive at their recommendation (Buy, Sell or Hold) on a stock after thoroughly analyzing the minute details associated with the company, it is natural for investors to be guided by estimate revisions while arriving at investment decisions. 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.
Estimates can move north for a number of reasons – favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario. Similarly, a stock may fall out of brokers’ favor due to adverse events like pipeline failure (for a biotech player). Trimming of earnings estimates by brokers often results in stock price depreciation. Naturally, investors tend to dump such stocks on the basis of broker advice.
Making the Most of Broker Opinions
We have designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions in 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 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 criteria are in the bottom 10% of our universe of over 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:
Abercrombie & Fitch Co. (ANF - Free Report) operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids through a network of over 700 stores in the United States and multiple stores across Canada, Europe, Asia, Australia and the Middle East. It has an impressive expected earnings per share growth rate of 14% for 3–5 years. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy Co Inc. (BBY - Free Report) ): Headquartered in The Richfield, MN, Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. This Zacks Rank #3 (Hold) company has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the past four quarters by an average of 27.2%.
Zumiez Inc. : Zumiez is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young men and women who want to express their individuality through fashion, music, art and culture of action sports, streetwear, and other unique lifestyles. This Zacks Rank #1 company has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the past four quarters by an average of 27.1%.
Delek US Holdings, Inc. (DK - Free Report) operates as an integrated energy company that provides petroleum refining and transportation services. The company operates in two segments, Refining and Logistics. The company has seen the Zacks Consensus Estimate for current-quarter earnings being revised 78.6% upward over the last seven days. The stock carries a Zacks Rank #3.
Comstock Resources, Inc. (CRK - Free Report) , headquartered in Frisco, TX, is an oil and gas exploration and production company engaged in exploitation activities of crude resources. This Zacks Rank #3 company delivered a positive earnings surprise of 35.9% in the last reported quarter.
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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