The sole aim of investors while designing their portfolio is to generate handsome returns, irrespective of the surrounding conditions. However, given the widespread coronavirus-triggered market turmoil, the effort in building a portfolio of stocks to reap substantial returns involves an uphill task.
Furthermore, with a plethora of stocks available in the market at any point of time, identifying potential outperformers is a tough task for individual investors. Therefore, in the absence of expert advice, picking a winning stock is like searching ‘a needle in a haystack’.
Additionally, with time being precious these days, it is next to impossible for investors to go through an extensive process of stock selection. Against this backdrop, it is in the best interest of investors to seek guidance from “experts in the field" who are called brokers.
Broker Advice: The Savior
The “experts” in the field of investment are brokers who are equipped with thorough knowledge on the space. Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a deluge of information on a company and its prospects, much more than any individual investor.
To realize their goals, they go through minute details of the financial documents available in the public domain apart from taking company conference calls and attending other presentations. Broker opinion should thus act as a manual for investors while carving their course of action on deciding a particular stock.
Direction of Earnings Estimates: A Winning Pointer
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. The estimate revisions serve as a key determinant of the stock price..
For example, a company’s earnings outperformance generally leads to northward estimate revisions with share price appreciation. Similarly, lackluster earnings often lead to stock price depreciation. Investors tend to be driven by the direction of estimate revisions and stock movement while formulating their investment strategy.
# (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).
We have also added the following screening parameters to ensure that the strategy is a winning one:
Price-to-Sales = Bot%10 (The lower the ratio the better. Companies meeting these criteria are in bottom 10% of our universe of more than 7,700 stocks with respect to this ratio).
Price greater than 5 (as a stock trading below $5 will not likely create a significant interest for most investors).
Average Daily Volume greater than 100,000 shares over the last 20 trading days (Volume has to be significant to ensure that these are easily traded).
Market value ($ mil) = Top #3000 (This gives us stocks that are the top 3000 in terms of 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:
Clearwater Paper Corporation CLW: This Spokane, WA-based company currently sports a Zacks Rank #1 (Strong Buy). The company produces pulp and paperboard at multiple facilities across the United States. The Zacks Consensus Estimate for 2020 earnings has been revised upward in excess of 100% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Laredo Petroleum LPI, based in Tulsa, OK, focuses on the exploration, development and acquisition of oil and natural gas properties, primarily in the Permian Basin of West Texas. This Zacks Rank #3 (Hold) company’s earnings outshined the Zacks Consensus Estimate in two of the last four quarters (missing the mark in the other two). The average beat is 4.1%.
Boise Cascade Company BCC is a manufacturer and distributer of wood products and building materials in the United States and Canada. This Zacks #3 Ranked company’s bottom line outpaced the Zacks Consensus Estimate in three of the ast four quarters (missing the mark in the other one). The beat is 34%, on average.
Headquartered in Duluth, GA, Asbury Automotive Group ABG is among the leading automotive retailers in the domestic market. This Zacks Rank #2 (Buy) stock’s earnings are expected to surge 41.5% for 2021.
Green Plains GPRE: This Nebraska-based company presently has a Zacks Rank of 2. It has an expected earnings growth rate of 46.1% for the current year. The company also delivered a positive earnings surprise of 23.1%, on average, over the trailing four quarters.
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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
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Clearwater Paper Corporation (CLW) : Free Stock Analysis Report
Asbury Automotive Group, Inc. (ABG) : Free Stock Analysis Report
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
Green Plains, Inc. (GPRE) : Free Stock Analysis Report
Laredo Petroleum, Inc. (LPI) : Free Stock Analysis Report
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