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5 Broker-Friendly Stocks to Rely on Amid the Market Chaos

Year 2022 was marked by extreme turbulence and volatility. To combat the sky-high inflation, the Fed adopted a hawkish stance and raised interest rates multiple times during the course of the year. Despite moderating a little bit, inflation remains high in the United States.  Consequently, further rate hikes in 2023 are likely.

The sky-high inflation apart, uncertainty due to the Russia-Ukraine war and the resurgence of COVID-19 cases, particularly in China, are further concerns. Despite the uncertainty, shunning equities is not an advisable option. We believe that investors should include broker-favorite stocks like American Airlines AAL, Cleveland-Cliff CLF, Boise Cascade Company BCC, Thor Industries THO and Caleres CAL in their watchlist.

Brokers, irrespective of their types (sell-side, buy-side or independent), undertake thorough research of the stocks covered by them. 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. Consequently, the 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.

Movement of Earnings Estimates: A Solid Pointer

Since brokers follow the stocks in their coverage minutely, they revise their earnings estimates 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 immediately influence the price of the stock.

Given the expertise and know-how of brokers in investment matters, it is natural for investors to believe that there is a solid reason/logic behind brokers improving their recommendation on a particular stock. In fact, a rating upgrade generally leads to stock price appreciation and vice versa. Estimates can move north for a number of reasons — favorable earnings performance, bullish guidance, product launch or any favorable macro scenario.

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

Ignore the Top Line at Your Peril

To design a winning strategy, it is not wise to consider only the bottom line only. In fact, according to some market watchers, a top-line outperformance is more creditable for a stock than mere earnings beat under some circumstances. Therefore, to make our strategy full-proof, one needs to address top-line concerns as well. We have considered the price/sales ratio, which serves as a strong complementary valuation metric, for screening stocks.

Screening Criteria

# (Up-Down Rating)/ Total (4 weeks) =Top #75: This gives the list of the 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.

Price-to-Sales = Bot%10: The lower the ratio, the better. Companies meeting this criterion are in the bottom 10% of our universe of over 7,700 stocks.

Price greater than 5: A stock trading below $5 will not likely be of significant interest to 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 passed the screen test:

American Airlines is based in Fort Worth, TX. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL. However, high fuel costs are hurting the bottom line.

Over the past 60 days, the Zacks Consensus Estimate for AAL’s 2023 earnings has been revised 13.1% upward. American Airlines currently carries a Zacks Rank #2  (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cleveland-Cliffs is a leading iron ore producer in the United States. It supplies differentiated iron ore pellets under long-term contracts to major blast furnace steel producers in North America. The Mining and Pelletizing operation gains from low-cost, high-quality iron ore pellet production with substantial logistics and transportation advantages to serve the Great Lakes steel market. The company should gain from its merger with AK Steel Holding Corporation.

Over the past 60 days, the Zacks Consensus Estimate for CLF’s 2023 earnings has been revised 54% upward. Cleveland-Cliffs currently sports a Zacks Rank #1.

Boise Cascade Company: Based in Boise, ID, BCC makes wood products and distributes building materials in the United States as well as Canada. Boise Cascade’s Building Materials Distribution and Wood Products segments are gaining strength from strong end-product demand as well as higher commodity product prices. It has also been increasing commodity offerings that will instill growth in the existing markets, underserved markets and across its entire national footprint.

Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has been revised 0.8% upward. BCC currently carries a Zacks Rank #3 (Hold).

Thor Industries is benefiting from its growth by acquisition strategy. The buyout of Germany-based EHG made Thor the largest recreational vehicle (RV) manufacturer in the world. Its cash flow generating ability also bodes well.

Over the past 30 days, the Zacks Consensus Estimate for 2023 earnings has been revised 0.8% upward. THO currently carries a Zacks Rank #3.

Caleres is a leading footwear retailer and wholesaler in the United States, China, Canada and Guam. The company operates through Famous Footwear and Brand Portfolio segments. This Saint Louis, MO-based company has been benefiting from the positive consumer demand trends and accelerated recovery in the footwear marketplace, aiding its sales.

The momentum in the Famous Footwear brand is expected to contribute meaningfully to sales growth. Strong performances of CAL’s emerging brands, including Vionic, Sam Edelman, Allen Edmonds and Blowfish Malibu, are expected to be growth drivers. Caleres has an excellent surprise history with its earnings having surpassed the Zacks Consensus Estimate in each of the last four quarters, the average being 26% CAL currently carries a Zacks Rank #3.

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 backtest 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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Thor Industries, Inc. (THO) : Free Stock Analysis Report

ClevelandCliffs Inc. (CLF) : Free Stock Analysis Report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report

Caleres, Inc. (CAL) : Free Stock Analysis Report

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