Faltering in life due to improper guidance is not unusual. The same is true for the investing world. With a plethora of stocks flooding the market at any point of time, it is difficult for an investor to make the right choice while designing one’s portfolio, unless guided by the “experts” in this field.
These “experts” are brokers equipped with detailed knowledge about the space. Brokers, irrespective of their types (sell-side, buy-side or independent), have access to a lot more information on a company and its prospects than individual investors. Consequently, brokers’ opinions act as valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.
Earnings Estimate Revisions – A Useful Pointer
Since brokers indulge in thorough research, the question of their actions being arbitrary does not arise. The direction of the estimate revisions acts as an important pointer regarding the price of a stock. In fact, a rating upgrade normally leads to stock-price appreciation and vice versa.
One of the well-accepted investment strategies is to maintain a diversified portfolio, in order to generate handsome returns irrespective of the market conditions. For instance, in the face of extremely low oil prices, analysts adopt a bullish stance on airline stocks and consequently raise estimates. Naturally, adding such stocks to one’s portfolio in such a scenario might prove to be a winning strategy.
To take care of the earnings performance, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the past four weeks.
What About Revenues?
While we have talked about the bottom line in detail, the top line (revenue portion) cannot be ignored. Notably, 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 the price/sales ratio in our screen that serves as a strong complementary valuation metric.
Screening Criteria # (Up- Down Rating)/ Total (4 weeks) =Top #75: This gives the list of top 75 companies that have witnessed net upgrades over the last four 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 four 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 the criteria are in the bottom 10% of our universe of more than 7,700 stocks with respect to this ratio. Price greater than 5: A stock trading below $5 is unlikely to create significant interest for most investors. Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded. Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000, if one judges by market capitalization. Com/ADR/Canadian= Com: This takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
American Airlines AAL, headquartered in Fort Worth, TX, operates more than 6,700 daily flights to more than 330 destinations in more than 50 nations from its hubs. This Zacks Rank #3 (Hold) company has an impressive track with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the past four quarters by an average of 2.4%. WESCO International ( WCC Quick Quote WCC - Free Report) , based in Pittsburgh, PA, is one of the largest players in the highly-fragmented distribution market for electrical construction products in North America. This Zacks #3 Ranked company’s expected earnings growth rate for the current year is 7.7%, while the industry's projected to fall 9.6%. American Axle & Manufacturing Holdings AXL is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. Driveline and drivetrain systems comprise components that transfer power from the engine to the drive wheels of a vehicle. This Zacks Rank #3 company’s estimated earnings growth rate for 2020 is 41.7% comparing favorably withthe industry's projected rise of 13.4%. California Resources Corporation CRC, based in Los Angeles, CA, is an oil and natural gas explorer. The Zacks Consensus Estimate for the ongoing-year earnings has been revised upward in excess of 100% over the past 90 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 Boise Cascade Company BCC: Headquartered in Boise, ID, this Zacks #3 Ranked company is one of the largest producers of engineered wood products and plywood in North America as well as a U.S. wholesale distributor of building products. Currently, the estimated earnings per share growth rate (next three to five years) for the company is 7.9%.
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.
Click here to sign up for a free trial to the Research Wizard today 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 .