That the coronavirus pandemic has dampened the earnings picture this season, which is in its last leg, is common knowledge. The latest earnings outlook indicates that total earnings of the S&P 500 participants who have reported first-quarter results so far are declined 11.1% on a year-over-year basis. Even though all the 16 Zacks sectors are affected, a few like transportation bore the brunt severely. Evidently, total earnings of the S&P 500 transportation stocks plunged 58% year over year.
Although, the bleak scenario depicted above is enough to unsettle investors, it is also a fact that those who already put their money in the stock market will never want their investment to go down the drain by choosing stocks unwisely for their respective portfolios. To avoid such blunders and instead, select the winning picks even in the most trying times, investors should seek advice from brokers, who are deemed experts in the field of investing.
Brokers, irrespective of their types (sell-side, buy-side or independent), do a thorough research on the stocks covered by them. They have access to a lot more information on a company’s profile and its prospects than individual investors. To meet their goal, they dig deep into the publicly available financial documents apart from attending company conference calls and other presentations.
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 a key determinant for the stock price. To take care of the earnings performance, we designed a screen based on improving analyst recommendations and upward estimate revisions over the last four weeks.
Consider the Top Line Too
However, designing a strategy based solely on the bottom line is unlikely to result in a winning strategy. Actually, according to many market watchers, a revenue beat is more commendable for a company than a mere earnings outperformance. To address the top-line issues, we included in our screen the 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.
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 this criterion are in bottom 10% of our universe of over 7,700 stocks with respect to this ratio.
Price greater than 5: A stock trading below $5 will not likely create significant interest for most investors.
Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded.
Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000 if one judges by market capitalization.
Com/ADR/Canadian= Com: This eliminates the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
ABM Industries’ (ABM - Free Report) offerings include janitorial, energy, facilities engineering, electrical and lighting, landscape and turf, HVAC and mechanical, mission critical, and parking solutions. Earnings of this Zacks Rank #3 (Hold) provider of integrated facility solutions surpassed the Zacks Consensus Estimate in each of the last four quarters.
Consol Energy (CEIX - Free Report) , carrying a Zack Rank of 3, is a producer and exporter of bituminous coal. The Zacks Consensus Estimate for current-year earnings has been revised 52.6% upward over the past 60 days.
Wood Dale, IL-based AAR Corporation (AIR - Free Report) provides various products and services to the aviation and defense industries worldwide. This Zacks #3 Ranked stock has a trailing four-quarter positive earnings surprise of 4.8%, on average. The company delivered better-than-estimated earnings per share in each of the last four quarters.
Headquartered in Providence, RI, United Natural Foods (UNFI - Free Report) is the leading distributor of natural, organic and specialty food and non-food products in the United States and Canada. The Zacks Consensus Estimate for current-year earnings has moved 9.1% north over the past 60 days for this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
DXP Enterprises (DXPE - Free Report) , carrying a Zacks Rank #3, is a leading products and service distributor. The company delivered better-than-expected earnings per share in three of the last four quarters and missed in one.
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.