With the third-quarter earnings season commencing shortly for most sectors, investors will look to add stocks to their respective portfolios, which have the potential to surpass earnings expectations in the to-be-reported quarter. Generally, an earnings outperformance results in stock price appreciation.

The task of selecting appropriate stocks from a plethora of options available in the stock market at a given point of time is anything but easy. The current scenario of the Delta-variant induced uncertainty made the task even more daunting. The procedure becomes further difficult when one tries to select a winning portfolio without proper guidance.

Time for Some Broker Advice?

In view of these unprecedented times and economic constraints, it is in the best interest of investors to be guided by the experts in the field. The concerned experts are brokers. Brokers, irrespective of their types (sell-side, buy-side or independent), undertake a thorough research of the stocks that they cover.

They 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.  Broker opinion should thus act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Direction of Earnings Estimates Serves as a Proper Pointer

As brokers meticulously follow the stocks in their coverage, they revise their earnings estimates after carefully examining the pros and the cons of an event for the concerned company. Naturally, their estimate revisions serve as an important pointer regarding the price of a stock.

To take care of the earnings performance, we designed a screen based on improving broker recommendations and upward estimate revisions over the last four weeks.

Do not Ignore the Top Line

However, designing a strategy based solely on the bottom line is unlikely to lead to a winning approach. Actually, 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 included in our screen the price/sales ratio, which 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 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 eliminates the ADR and Canadian stocks.

Here are five of the 10 stocks that made it through the screen:

C.H. Robinson Worldwide CHRW, currently carrying a Zacks Rank #3 (Hold), operates as an asset-light logistics company.  This Minnesota-based freight broker is being aided by the improving freight scenario in the United States. The company has an impressive track record with respect to earnings, which surpassed the Zacks Consensus Estimate in each of the last four quarters, the average being 14.5%. 

ArcBest Corporation ARCB provides freight transportation services and solutions. Improving freight conditions in the United States bode well for this presently Zacks Rank #1 (Strong Buy) player. Solid customer demand and higher market rates are supporting growth at ArcBest. The stock has witnessed the Zacks Consensus Estimate for current-quarter earnings being revised 29.8% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

AutoNation AN, currently sporting a Zacks Rank of 1, is an automotive retailer in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings move 7.3% north over the past 60 days. The company is benefiting from factors like its diversified product mix and cost-containment efforts.

Based in Houston, TX, Phillips 66's PSX operations incorporate refining, midstream, marketing and specialties, and chemicals. The company, currently carrying a Zacks Rank of 3, is strongly positioned to gain from rising demand for midstream assets in the United States. It has an impressive history with respect to earnings, which surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 28.6%. 

Peabody Energy BTU: St Louis, MO-based Peabody Energy engages in the coal-mining business and has both thermal and metallurgical operations to manage. Revival in the domestic and international coal markets augurs well for this currently Zacks Rank #2 (Buy) stock that outperformed on earnings in each of the last four quarters, the average being 48%.

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 to day. 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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Peabody Energy Corporation (BTU) : Free Stock Analysis Report
 
C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
 
AutoNation, Inc. (AN) : Free Stock Analysis Report
 
Phillips 66 (PSX) : Free Stock Analysis Report
 
ArcBest Corporation (ARCB) : Free Stock Analysis Report
 
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