The frenzy for the National Collegiate Athletic Association (NCAA) Men's Division I Basketball Tournament is not limited to the sports space but spreads to the investment world as it fuels growth in various corners. As such, millions of Americans are seeking to capitalize this opportunity by enthusiastically filling in the brackets that could lead to handsome returns from the stocks to be wagered on.
Popularly hailed as “March Madness,” the NCAA is underway with the champion slated to be crowned on April 2, at Alamodome in San Antonio, TX. Since the basketball tournament has advanced to the Sweet Sixteen level (to be played on Mar 22), let’s fill in 16 stock brackets first and then compare those like we do for March Madness to get to the real winner.
How to Pick Sweet 16 Stocks
Akin to the basketball championship, we have chosen four sectors – retail and wholesale, computer and technology, business services and basic materials – out of 16 Zacks sectors that have outperformed over the past one year. We have picked the four best industries (within the top 45%) from each sector with the help of the Zacks Industry Rank.
Then, we picked one stock from each industry having a Zacks Rank #1 (Strong Buy) or 2 (Buy) with the highest market capitalization in order to get the Sweet Sixteen stocks. Top-ranked stocks indicate rising earnings estimates, and those with strong earnings momentum are more likely to outpace the market. This was a cakewalk all thanks to the Zacks Stock Screener. You can see the complete list of today’s Zacks #1 Rank stocks here.
Once the stocks are chosen, one-year performance was considered for the qualifiers to the Elite Eight. Notably, the stocks with the highest industry ranks will matchup with the stocks having low industry ranks.
Retail and Wholesale
The four top industries and their best stocks in the retail and wholesale sector are as follows:
1. Retail -Regional Department Stores: Rank in the top 1%; Stock – Kohl's Corporation (KSS - Free Report)
2. Retail - Computer Hardware: Rank in the top 12%; Stock – PC Connection Inc. (CNXN - Free Report)
3. Automotive - Retail and Whole Sales: Rank in the top 18%; Stock – Penske Automotive Group Inc. (PAG - Free Report)
4. Retail - Consumer Electronics: Rank in the top 27%; Stock – Conn's Inc. (CONN - Free Report)
KSS vs. CONN: Conn's edged past Kohl's with a gain of 299% versus 70% for the latter.
CNXN vs. PAG: Penske Automotive has shed 4.2%, lower than 7.8% shed by PC Connection in the same period.
Computer and Technology
The four top industries and their best stocks in the computer and technology sector are as follows:
1. Semiconductor Memory: Rank in the top 0%; Stock – Micron Technology Inc. (MU - Free Report)
2. Semiconductor Equipment - Wafer Fabrication: Rank in the top 2%; Stock – Applied Materials Inc. (AMAT - Free Report)
3. Electronics - Testing Equipment: Rank in the top 6%; Stock – Fortive Corporation FTV
4. Semiconductor - General: Rank in the top 10%; Stock – Intel Corporation (INTC - Free Report)
MU vs. INTC: Here, Micron Technology easily outpaced Intel as it gained about 135% in a year compared with 46% growth for INTC.
AMAT vs. FTV: Applied Materials is clearly the winner as it has returned nearly 53% in a year versus a gain of 34% for Fortive.
The four top industries and their best stocks in the business services sector are as follows:
1. Auction and Valuation Services: Rank in the top 5%; Stock – Copart Inc. CPRT
2. Government Services: Rank in the top 7%; Stock – Maximus Inc. MMS
3. Staffing Firms: Rank in the top 10%; Stock – ManpowerGroup MAN
4. Business - Information Services: Rank in the top 12%; Stock – S&P Global Inc. (SPGI - Free Report)
CPRT vs. SPGI: Here, CPRT wins over SPGI as it has returned 67% in a year versus a gain of 52% for the latter.
MMS vs. MAN: Manpower beats Maximus in the same period, gaining 20% against 10% for MMS.
The four top industries and their best stocks in the basic materials sector are as follows:
1. Agriculture - Products: Rank in the top 4%; Stock – Cal-Maine Foods Inc. (CALM - Free Report)
2. Steel - Speciality: Rank in the top 5%; Stock – Allegheny Technologies Incorporated (ATI - Free Report)
3. Paper and Related Products: Rank in the top 7%; Stock – Fibria Celulose S.A. (FBR - Free Report)
4. Mining - Iron: Rank in the top 7%; Stock – VALE S.A. (VALE - Free Report)
CALM vs. VALE: VALE wins over Cal-Maine Foods by a wide margin of 10% over the past one year.
ATI vs. FBR: Fibria Celulose easily defeated Allegheny Technologies by climbing 112% versus 49% gain for the latter.
The winners of each industry group will compete against each other in the Elite Eight.
Elite Eight (March 25)
Among the eight winning stocks, the highest average positive earnings surprise over the past four quarters was used to decide the winners of each sector that should advance to the Final Four.
CONN vs. PAG: Conn's has seen average positive earnings surprise of 493.18% versus 2.41% for Penske Automotive. Hence, CONN wins over PAG.
MU vs. AMAT: Micron Technology wins with an average positive earnings surprise of 10.24% over the past four quarters against 4.76% for Applied Materials.
CPRT vs. MAN: Copart wins over Manpower, as its average beat of 16.57% is much higher than that of 2.72% for MAN.
VALE vs. FBR: Here, VALE is the winner with average positive earnings surprise of 12.60% as compared with negative surprise of 54.12% for Fibria Celulose.
Final Four (March 31)
We now have the best stocks in the four sectors. To advance to the next level, we have considered the year-over-year earnings growth for fiscal 2018. Let us once again dig into the Zacks Industry Rank of the four stocks to decide the contenders.
Conn's Inc. (CONN - Free Report) – Zacks Industry Rank in the top 27%
Micron Technology Inc. (MU - Free Report) – Zacks Industry Rank in the top 0%
Copart Inc. (CPRT) – Zacks Industry Rank in the top 5%
VALE S.A. (VALE - Free Report) – Zacks Industry Rank in the top 7%
So in the matchups, we have Micron Technology and Conn's on one side, and Copart and VALE on the other.
Micron Technology Inc. (MU - Free Report) vs. Conn's Inc. (CONN - Free Report) : Micron Technology earnings are expected to grow 114.31% while Conn's will likely see 174.62% growth. With a higher projected earnings growth rate, CONN wins and advances toward the final round to take on the winner of CRPT vs. VALE.
Copart Inc. (CPRT) vs. VALE S.A. (VALE - Free Report) : Here, earnings at Copart are expected to grow 34.88% while VALE earnings will see growth of 1.35%. As a result, CPRT wins and will again matchup with Conn's Inc. for the championship.
The Championship (April 2)
Let’s look at our VGM Score (V stands for Value, G for Growth and M for Momentum), which is simply a weighted combination of the three. The VGM score when combined with a Zacks Rank #1 or 2 offer the best upside potential with a frenzy of cheap price, robust growth and strong momentum.
Conn's Inc. finally wins over Copart Inc. with a VGM Score of A against D for the latter.
Based on our internal research and metrics, Conn's, having a Zacks Rank #1 and a VGM Score of A, has emerged as the winner of the 2018 March Madness contest and could be a top bet for this year. While it was exciting and fun to dribble toward the winning stock, we expect the twists and turns in the NCAA tournament to lead to some dramatic moves in the investment world.
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