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3 Zacks Ranked 'Buy' Stocks Leading the Pack Through February

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·6 min read
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It’s been a rocky start for 2022, as the market pulled back substantially in January and now threatens to retest the lows of that move as we enter the latter half of February. Thursday’s price action was swift as the market opened sharply lower, pared those losses in the early afternoon, only to finish near where it started the day.

The University of Michigan’s preliminary Consumer Sentiment Index reading is due out at 10am this morning. Sentiment is likely to remain subdued this month as consumers continue to feel the effects of higher inflation and lingering supply chain shortages. Estimates are calling for a reading of 67.0, down from 67.2 from the prior reading.

As we attempt to navigate a volatile and uncertain market, investors may be tempted to pull the trigger and buy some beaten down names as they appear ‘cheap’. The problem with this approach is that cheap stocks are normally trading cheaply for a reason, and they will likely become cheaper before potentially staging a turnaround. A much more prudent approach involves identifying stocks that are leading in the current market environment and waiting for proper entry points to present themselves.

On that note, we’re going to analyze three stocks that are all ranked a Zacks #2 Buy or better and have held up well through the recent volatility. All three stocks are components of the Zacks Industrial Products sector, which currently ranks in the top 44% of all Zacks Ranked Sectors. Digging a bit deeper, these companies are contained within the Zacks Manufacturing – Farm Equipment industry group, which ranks in the top 29% of all Zacks Ranked Industries.

It's no secret that investing in stocks located within the top sectors and industries can provide a boost to portfolio returns. This phenomenon been well-researched and documented, illustrating that about half of a stock’s future price appreciation is due to its industry grouping. Our own proprietary study has shown that stocks contained within the top 50% of Zacks Ranked Industries outperformed the bottom 50% by a factor of more than 2 to 1.

To that end, let’s delve into three stocks that sport this favorable sector and industry combination.

Deere & Co. (DE)

Deere & Co. is an American manufacturer of construction, agricultural, engine, forestry, and lawn care equipment. The company operates through four segments: Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services. The company is well-known for its tractors, mowing equipment, excavators, milling machines, and sports turf care applications. Deere was founded in 1837 and is headquartered in Moline, IL.

DE is benefitting from technological advances and agricultural mechanization, which are expanding existing markets and creating new ones for the company to thrive in. Deere expects net income for the current fiscal year to lie in the range of $6.5-7 billion on improvements in farming and construction. As commodity prices continue to soar, farmers will fuel demand for the company’s agricultural equipment. The company’s revenue trends are impressive, and sales are expected to climb 18.21% this year to $46.97 billion.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

DE is the 78th largest company in the S&P 500, sporting a $121.17 billion dollar market capitalization. Earnings surprises are a bright spot for the machinery manufacturer, as DE has beaten estimates in each quarter for the past two years. The company most recently reported Q4 EPS of $4.12, delivering a +7.85% surprise over the $3.82 consensus estimate. During the past four quarters, DE has posted an average earnings surprise of +33.57%. Shares have risen in stride, advancing nearly 27% in the past year.

Deere & Company Price and EPS Surprise

Deere & Company Price and EPS Surprise
Deere & Company Price and EPS Surprise

What the Zacks Model Unveils

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently seen positive earnings estimate revision activity. This more recent information can be a better predictor of the future and give investors a leg up during earnings season. In fact, when combining Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive earnings surprise 70% of the time according to our 10-year backtest.

DE is a Zacks Rank #2 (Buy) and boasts an impressive +17.33% Earnings ESP. Another beat may be in the cards when the company reports next week on February 18th.

Analysts are expecting growth to continue in 2022 and beyond. The Zacks Consensus Estimate for 2022 EPS is $22.21, translating to growth of 16.96% relative to last year.

Titan International, Inc. (TWI)

Titan International is a global manufacturer of wheels, tires, and undercarriage systems and components for off-highway vehicles. The company operates in North America, Europe, Latin America, the Middle East, Africa, and Russia. TWI offers components for agricultural equipment including tractors, skidders, plows, and irrigation equipment. Titan International was founded in 1890 and is based in Quincy, IL.

A Zacks #2 (Buy) stock, TWI has surpassed earnings estimates in each of the past six quarters. The company has delivered a trailing four-quarter average earnings beat of +32.09%, supporting the stock’s 42.65% advance in the past year. Despite the firm’s remarkable performance, TWI trades at just an 11.41 forward P/E. The manufacturer is relatively undervalued when compared to its industry average (16.55).

Titan International, Inc. Price and EPS Surprise

Titan International, Inc. Price and EPS Surprise
Titan International, Inc. Price and EPS Surprise

For the most recent quarter, analysts are anticipating EPS of $0.17, which would represent growth of 270% versus Q4 2020. TWI is scheduled to report earnings on March 3rd. Analysts have increased their 2022 EPS estimates by 13.25% in the past 60 days. The Zacks Consensus Estimate now stands at $0.94 – an implied 48.41% growth rate compared to last year.

AGCO Corp. (AGCO)

AGCO Corp. is a global manufacturer and distributor of agricultural equipment and related replacement parts. The company offers tractors, loader wagons, spreaders, mowers, ventilation and watering systems, and field cultivators. AGCO markets its products under the Challenger, Fendt, Massy Ferguson, and Valtra brands through a network of independent dealers and distributors. AGCO was founded in 1990 and is based in Duluth, GA.

AGCO is a Zacks Rank #1 (Strong Buy) and has exceeded earnings estimates in each of the past eight quarters. The company most recently reported Q4 EPS earlier this month of $3.08, a +79.07% surprise over the $1.72 consensus. AGCO is averaging a positive surprise of 56.65% during the past four quarters. The stock is up better than 12% this year.

AGCO Corporation Price and EPS Surprise

AGCO Corporation Price and EPS Surprise
AGCO Corporation Price and EPS Surprise

AGCO expects earnings growth to continue in the current year on robust end-market demand and strong farm prospects. The company is relatively undervalued, trading at an 11.35 forward P/E which is substantially lower than the industry average (16.55). Analysts covering AGCO have upped their 2022 EPS estimates by 10.59% in the past 60 days. The ’22 Zacks Consensus Estimate is now $11.49, reflecting growth of 10.69% versus last year. The picture looks even brighter for 2023, with analysts anticipating EPS growth of 22.72% to $14.10.


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Deere & Company (DE) : Free Stock Analysis Report

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Titan International, Inc. (TWI) : Free Stock Analysis Report

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