Concerns of global economic sluggishness owing to the trade war between the United States and China and tensions with the likes of Iran and North Korea have hurt the broader equity market on various occasions this year.
However, irrespective of market conditions, investors strive to design a winning portfolio of stocks. They, after all, are putting their hard-earned money into stocks. Amid the prevalent confusion, it is almost impossible for individual investors to come up with a winning portfolio of stocks without proper guidance. Therefore, it is in the best interest of investors to seek advice from “experts in the field."
Who Are These Experts?
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 Serves as a Proper Guide
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. Naturally, their 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 broker recommendation and upward estimate revisions over the last four weeks.
Do Not Ignore the Top Line
However, designing a strategy based solely on the bottom line is unlikely to result in a winning approach. 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. To address top-line concerns, we have included in our screen 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).
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 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:
Brentwood, TN-based Delek US Holdings (DK - Free Report) is an independent refiner, transporter and marketer of petroleum products. The Zacks Consensus Estimate for Delek US Holdings’ current-year earnings has been revised upward to the tune of 22.6% over the past 60 days. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AutoNation (AN - Free Report) , through its subsidiaries, operates as an automotive retailer in the United States. The company also offers vehicle maintenance and repair services, vehicle parts, extended service contracts and vehicle protection products. This Zacks Rank #2 stock has seen the Zacks Consensus Estimate for current-year earnings being revised upward to the tune of 2.6% over the past 60 days.
Dick's Sporting Goods (DKS - Free Report) , based in Coraopolis, PA, operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc. The stock carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for current-year earnings has been revised 1.2% upward over the past 60 days.
C&J Energy Services (CJ - Free Report) provides onshore well construction, well completion and support to oil and gas exploration and production companies. This Zacks Rank #3 company also offers complementary oilfield services. Texas-based C&J Services surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 11.6%.
Headquartered in San Francisco, CA, ABM Industries (ABM - Free Report) 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 each of the trailing four quarters with the average being 9.2%.
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.