Investors, while putting their hard-earned money into a stock, obviously expect handsome returns. However, in view of the uncertainties associated with the investment world and the huge number of stocks flooding the market, the task of designing a winning portfolio becomes daunting, particularly in the absence of proper know-how/expertise.
In fact, lack of proper guidance often causes one to falter in life. This is true for the investing world as well. Moreover, with time at a premium these days, it is next to impossible for investors to keep track of market movements to identify opportune moment(s) for buying or offloading a particular stock to maximize returns. Therefore, guidance from proper channels is a must.
Time for Some Broker Advice
The experts in the investing world are brokers. Generally, three types of brokers (sell-side, buy-side and independent) are present in the investment world, with sell-side analysts being the most common. They are employed by various brokerage firms to provide unbiased opinion to investors on the stocks under their coverage 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 much detailed information on a company. Toward this end, they attend company conference calls/presentations 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.
Direction of Earnings Estimates: An Invaluable 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. 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.
Making the Most of Broker Guidance
The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions in earnings estimates over the last four weeks.
Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it has been included. The abovementioned ratio takes care of the company’s top line, making the strategy effective.
# (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 eliminates the ADR and Canadian stocks).
Here are five of the 10 stocks that passed the screen:
CVS Health (CVS - Free Report) is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care. The company, carrying a Zacks Rank #2 (Buy), is headquartered in Woonsocket, RI. The Zacks Consensus Estimate for current-quarter earnings has increased 40.3% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Asbury Automotive Group (ABG - Free Report) is one of the largest automotive retailers in the United States. This Zacks Rank #3 (Hold) company, based in Duluth, GA, owns and operates over 90 automobile retailers across 10 states. The company’s expected EPS growth rate for three to five years currently stands at 14.3%, comparing favorably with the industry's growth rate of 9.8%.
Anixter International (AXE - Free Report) , sporting a Zacks Rank #1, is headquartered in Glenview, IL. Anixter International, founded in 1957, is one of the leading suppliers of network, security, electrical, as well as utility power products and services in the world. The company has a solid earnings surprise history having surpassed estimates in each of the last four quarters by an average of 14%.
Cincinnati Bell (CBB - Free Report) is based in Cincinnati, OH and carries a Zacks Rank #2. The company provides business customers with outsourced data center colocation operations and related managed services in world class, state-of-the-art data center facilities. The expected EPS growth rate (three to five years) for the company is 2%.
AmerisourceBergen (ABC - Free Report) is one of the world’s largest pharmaceutical services companies. This Zacks Rank #2 company focuses on providing drug distribution and related services to reduce health care costs and improve patient outcomes. The company surpassed the Zacks Consensus Estimate for earnings in each of the past four quarters. The average beat is 5.8%.
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.