The uncertainties in the investment world make the task of selecting stocks for handsome returns a daunting one. The deluge of stocks flooding the market makes the task all the more challenging. In the wake of this, picking the right stocks is quite similar to looking for a needle in a haystack.
Thus, one needs to have the expertise and thorough knowledge of investing to be able to rake in the maximum return from their portfolios. However, time constraint makes it impossible for individual investors to gather such detailed information. At the same time investors, while pumping their hard earned money into the stock market, are governed by the sole objective of making handsome returns.
So what is the way out?
Broker Advice to the Rescue
It is in the best interest of investors to seek and pay heed to expert guidance. The “experts” are brokers who are equipped with detailed 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. Consequently, opinion of brokers should act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.
Pay Heed to Earnings Estimate Revision
Broker ratings are backed by sound logic. This is because brokers closely follow the stocks in their coverage and revise earnings estimates only after carefully examining the pros and cons of an event for the concerned company. In fact, a rating upgrade or downgrade by brokers has the potential to influence the price of the stock.
Naturally, when investors see brokers revising their estimates or recommendation on a stock, they often assume that there is something in the stock that has attracted analyst attention.In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade.
Estimates can move north for a number of reasons – favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario.
Don’t Ignore the Top line
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 like a strong dollar. To take care of the top line, we have considered the price/sales ratio 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.
To ensure that the strategy is a full-proof and winning one, we have added the following screening parameters:
- 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: 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 takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
Tailored Brands Inc (TLRD) is a men’s specialty apparel retailer in the U.S. and Canada. The brands include Men’s Wearhouse, Jos. A. Bank, Joseph Abboud, Moores Clothing for Men and K&G Fashion Superstores. This Zacks Rank #1 (Strong Buy) stock has an encouraging track record with respect to the bottom line, having surpassed estimates in three of the last four quarters. The average beat is 8.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Incorporated in 1966 and headquartered in Richfield, MN, Best Buy Co Inc (BBY) is a multinational specialty retailer. It deals in consumer electronics, home office products, entertainment software, appliances and related services through around 1,500 domestic locations and 300 international outlets. The stock, sporting a Zacks Rank #1, has beaten earnings estimates in each of the last four quarters at an average of 25.7%.
Based in Indianapolis, IN, and formed through the merger of Anthem and WellPoint Health Networks in Nov 2004, Anthem Inc (ANTM) is one of the largest publicly traded managed care organizations in terms of membership. The Zacks Consensus Estimate for the current quarter has increased by 7 cents to $1.54 per share over the last month. Moreover, the stock price for this Zacks Rank #3 (Hold) stock appreciated 10.8% in the last six months.
Greece, Athens-based Aegean Marine Petroleum Network Inc. (ANW) is a marine fuel logistics company, engaged in the supply and marketing of refined marine fuel and lubricants to ships in ports and at sea. The stock, sporting a Zacks Rank #1, has an encouraging track record with respect to the bottom line, having posted better-than-expected earnings in two of the last four quarters. The Zacks Consensus Estimate for the current quarter has increased by 3 cents to 39 cents per share over the last month. Moreover, the stock price for the transportation player has appreciated 79.3% in the last six months.
San Antonio, TX-based Tesoro Corporation (TSO) is an independent refiner and marketer of refined petroleum products in western U.S. The company is one the largest independent oil refiners in the U.S. The stock, carrying a Zacks Rank #3, has surpassed earnings estimates in three of the last four quarters. The average beat stands at 24.9%.
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.
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.
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