The sole aim of investors, while designing their portfolio, is to generate handsome returns. However, equity market tricks are not easy to master with a deluge of stocks flooding the space at any point of time. This is particularly a daunting task when one tries to select a winning portfolio without proper guidance.
Therefore, it is in the best interest of investors to be guided by the experts in the field. The experts in the field of investing are brokers.
Of the three types of brokers/analysts (sell-side, buy-side and independent) in the investment world, sell-side analysts are most common. Various brokerage firms employ them to provide unbiased opinion to investors after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors.
All types of brokers indulge in thorough research of the stocks under their coverage. They have access to detailed information on a company. They attend company conference calls/presentations to this end and scrutinize every detail available publicly before advising investors. Naturally, broker advice acts as an invaluable guide for investors in their bid to garner the maximum from their portfolios.
Earnings Estimate Revisions – An Invaluable Pointer
Since brokers follow stocks in their coverage minutely, they revise their earnings estimates on a stock after carefully examining the pros and cons of an event for the concerned company. All decisions by brokers are backed by solid logic and thus estimate revisions serve as an important pointer regarding the price of a stock.
For instance, an earnings beat 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.
Revenue Performance Not to be Ignored
While we have talked about the bottom line in detail, the revenue performance should not be overlooked. Actually, according to many market watchers a revenue beat is more creditable for a company than a mere earnings outperformance.
To address top-line concerns, we have included price/sales ratio in our screen. It 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.
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.
Price greater than 5: A stock trading below $5 will not likely be of significant interest to most investors.
Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded.
Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000 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 passed the screen:
Molina Healthcare (MOH - Free Report) is a multi-state managed care organization participating exclusively in government-sponsored healthcare programs. This Zacks Rank #1 (Strong Buy) company is headquartered in Long Beach, CA. Molina Healthcare has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters by an average of 82.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dana Incorporated (DAN - Free Report) is a manufacturer and seller of driveline, sealing and thermal-management products for vehicle manufacturers. The stock carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings is projected to increase 15.5% on a year-over-year basis, much higher than its industry’s average of 3.7%.
DICK’S Sporting Goods (DKS - Free Report) , based in Pennsylvania, operates as a full-line sporting goods retailer. The company offers athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipments. The Zacks Consensus Estimate for current-year earnings increased 0.6% over the last 60 days. The stock carries a Zacks Rank #3 (Hold).
Centene Corporation (CNC - Free Report) is a well-diversified, multi-national health care company that primarily provides a set of services to the government sponsored health care programs. This Zacks Rank #3 stock has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters with the average being 4.9%.
Covenant Transportation Group (CVTI - Free Report) is a truckload carrier that offers just-in-time and other premium transportation services throughout the United States. The Zacks Consensus Estimate for current-year earnings is projected to increase 8.5% on a year-over-year basis. The stock carries a Zacks Rank #3.
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.