A high proportion of companies have reported better-than-expected earnings per share in the current reporting cycle.
Generally, an earnings beat by a company leads to an appreciation in its stock price. Given this backdrop, investors would like to add outperformers to their respective portfolios for healthy returns.
However, with a plethora of earnings reports flooding the market during the reporting cycle, pinpointing outperformers is by no means an easy task for individual investors. In the absence of proper guidance, identifying a winning stock is akin to searching for ‘a needle in a haystack’, for an investor. The proper guidance, in this respect, comes from brokers, who are deemed to be experts, equipped with vast knowledge and know how as far as the field of investing is concerned.
Of the three types of brokers/analysts (sell-side, buy-side and independent) present 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.
Brokers, irrespective of their type, attend company conference calls/presentations and scrutinize every detail available publicly before advising investors about their course of action (buy, sell or hold a stock). In view of their expertise and profound understanding of stocks and the investing world, it is a no-brainer that investors should pay heed to broker advice to generate the maximum from their portfolios.
Earnings Estimate Revisions
Since brokers follow the stocks in their coverage closely, they revise their earnings estimates on a stock after carefully examining the pros and cons of an event for the concerned company. Their action is certainly not arbitrary or illogical. Thus, estimate revisions serve as an important guide regarding the price of a stock.
For example, an earnings beat by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings results 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.
Value the Top line
To design a winning strategy, it is not wise to consider only the bottom line. In fact, according to some market watchers, a top-line outperformance is more creditable for a stock than a bottom line outperformance, under some circumstances. Therefore, to make the strategy full-proof, one needs to address top-line concerns as well. We have considered the price/sales ratio, which serves as a strong complementary valuation metric, for screening stocks.
# (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 criteria are in the bottom 10% of our universe of over 7,700 stocks with respect to this ratio.
Price greater than 5:A stock trading below $5 will not likely be of significant interest to most investors.
Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded.
Market value ($ mil) = Top #3000:This gives us stocks that are in 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:
Abercrombie & Fitch Co. (ANF - Free Report) offers apparel, intimates, personal care products, and accessories for men and women. The stock carries a Zacks Rank #2 (Buy). It 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 beat being 88.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bloomin' Brands ((BLMN - Free Report) ), based in Tampa, FL, is a casual dining restaurant company. It has a portfolio of differentiated restaurant concepts. The stock carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for current-quarter earnings has improved 1.4% over the past 60 days.
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 has increased 0.6% over the past 60 days. The stock carries a Zacks Rank #3.
ABM Industries (ABM - Free Report) is headquartered in San Francisco, CA. The company provides engineering, janitorial, parking, and facility solutions to commercial, industrial, institutional, and retail facilities. ABM Industries, carrying a Zacks Rank #3, has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters with the average surprise being 1.2%.
Avnet (AVT - Free Report) is based in Phoenix, AZ. It is one of the world’s largest distributors of electronic components and computer products. Avnet, carrying a Zacks Rank #3, has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters with the average beat being 2.6%.
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.