Over the past few weeks, U.S. tensions with China, Iran and the uncertainty regarding diplomatic ties with North Korea have dragged the broader equity market down on multiple occasions.
As if the above woes were not enough, the political crisis in Italy also created ripples across the global equity markets a couple of days ago. Investors fear that such a constitutional crisis in one of Europe’s largest economies will wreak havoc worldwide. Markets are also rattled by the political turmoil in Spain
Time for Some Expert Advice?
Given the string of unfavorable political events worldwide, investors are striving to design a winning portfolio of stocks. They, after all, are putting their hard-earned money into stocks and consequently their sole objective is to generate handsome returns irrespective of the market conditions.
One of the tried and tested strategies is to maintain a well-diversified portfolio (i.e. including stocks from different industries) so that one rakes in solid returns at all times. However, it is easier said than done.
With multiple stocks flooding the market at any point of time, it is next to impossible to design one’s portfolio with appropriate stocks in the absence of guidance from people equipped with proper knowhow about the market.
Additionally, 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."
Who are the Experts & Why?
The “experts” in the field of investing are brokers who are equipped with thorough knowledge about the space. Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a lot more information on a company and its prospects than individual investors.
To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations. Broker opinion should thus act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.
Direction of Earnings Estimates: A Winning Pointer
Since brokers meticulously follow the stocks in their coverage, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. The estimate revisions serve as an important pointer regarding the price of a stock.
For example, an earnings outperformance by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings often lead to stock price depreciation. Investors tend to be guided by the direction of estimate revisions and stock price while formulating their investment strategy.
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 Too
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 eliminates the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
Bunge Limited (BG - Free Report) is an integrated global agribusiness and food company spanning the farm-to-consumer food chain. This Zacks Rank #1 (Strong Buy) company is based in White Plains, NY. The Zacks Consensus Estimate for current-year earnings improved 21.1% over the last 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Delek US Holdings, Inc. (DK - Free Report) is a diversified downstream operator with interests in refining, wholesale distribution of refined products, and convenience retail. The Zacks Consensus Estimate for current-year earnings improved 32.5% over the last 30 days. The company sports a Zacks Rank #1.
Big 5 Sporting Goods Corporation (BGFV - Free Report) isa sporting goods retailer in the United States. This Zacks Rank #1 stocksaw the Zacks Consensus Estimate for current-year earnings being revised upward to the tune of 21.4% over the last 30 days.
Leawood, KS-based AMC Entertainment Holdings, Inc. (AMC - Free Report) is engaged in the theatrical exhibition business. This Zacks Rank #3 (Hold) company has an impressive history with respect to earnings per share. It outshined the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 67.6%.
Century Communities Inc. (CCS - Free Report) is a home building and construction company. This Zacks Rank #1 company is based in Greenwood Village, CO. The Zacks Consensus Estimate for current-year earnings improved 7.7% over the last 30 days.
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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