It is not unusual to falter in life due to lack or absence of proper guidance. The same theory applies to the investing world as well. With a plethora of stocks flooding the market at any point of time, it is very much possible for an investor to make a hasty decision while designing one’s portfolio in want of know-how/expertise. Choice of improper stocks can adversely impact his/her returns, thereby defeating the very objective of shelling out hard-earned money in the highly unpredictable stock market.
Brokers to the Rescue
To avoid such predicament, investors rely on the guidance provided by brokers who are deemed experts in the field. Brokers, irrespective of their types (sell-side, buy-side or independent), undertake a thorough research of the stocks covered by them.
To that end, they attend company conference calls, interview management personnel and minutely study the company’s publicly available documents among other things. Against this backdrop, it is no surprise that they have extensive knowledge on the stocks in their portfolio(s). Similarly, it is in the best interest of investors to be guided by such well-researched information of the “experts” in the field while arriving at crucial investment decisions (buy, sell or hold).
Since brokers indulge in in-depth analysis, the question of their actions being arbitrary does not arise. The direction of the estimate revisions serves as an important pointer in determining the price of a stock. In fact, a rating upgrade normally leads to stock price appreciation and vice versa.
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.
Don’t Ignore the Top Line
A strategy designed solely on the basis of the bottom line is unlikely to result in a winning strategy. According to many market watchers, a revenue beat is more creditable for a company than a mere earnings outperformance. To address the top-line concerns, 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 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:
Bassett Furniture Industries, Incorporated BSET carries out manufacturing, marketing and retailing of home furnishings in the United States and internationally. The stock presently sports a Zacks Rank #1 (Strong Buy). Factors like an improved housing market scenario in the United States, product innovation and efficient cost management are aiding the company’s earnings, which outshined the Zacks Consensus Estimate in each of the last four quarters, the average being in excess of 100%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Peabody Energy BTU: St Louis, MO-based Peabody Energy engages in the coal mining business and has both thermal and metallurgical operations. The revival in the domestic and international coal markets bodes well for this currently Zacks Rank #2 (Buy) stock.
AutoNation AN is the largest automotive retailer in the United States. The stock, currently sporting a Zacks Rank of 1, has seen the Zacks Consensus Estimate for earnings improve 38.4% over the past 60 days. Factors like a diversified product mix and multiple streams of income are supporting the company’s growth.
Arch Resources ARCH based in St. Louis, MO, is one of the largest coal producers in the United States. The stock, currently sporting a Zacks Rank #1, has seen the Zacks Consensus Estimate for earnings move 37.7% north over the past 60 days. Factors like its strong liquidity position are serving the stock well.
Abercrombie & Fitch Company ANF operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids. The Zacks Consensus Estimate for this presently Zacks #1 Ranked stock’s current-year earnings has been revised 117.1% upward over the past 60 days. The company is being well-served by robust digital sales and efficient cost-control measures.
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.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Peabody Energy Corporation (BTU) : Free Stock Analysis Report
AutoNation, Inc. (AN) : Free Stock Analysis Report
Bassett Furniture Industries, Incorporated (BSET) : Free Stock Analysis Report
Arch Resources Inc. (ARCH) : Free Stock Analysis Report
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