5 Broker-Friendly Stocks to Watch Ahead of Q2 Earnings Season
Agreed that signs of easing inflation have brought some sort of relief for U.S. stock markets, but the fact remains that we are far from being out of the woods. Most market watchers believe that the Fed will resume its rate hikes as expected at its next meeting slated for Jul 25-26. A 25-basis point rate hike is very likely.
That said, the U.S. stock markets had plenty to cheer about in the first half of 2023, with the three major stock indexes — the Dow, the S&P 500, and the Nasdaq Composite — showing gains.
Against this backdrop, the Q2 earnings season is knocking on the doors. Earnings reports from companies from various sectors are likely to flood the markets soon. Investors would like to add stocks with the potential to surpass earnings expectations to their respective portfolios. This is because an earnings beat generally leads to stock price appreciation.
However, the task of designing one’s portfolio with potential outperformers is quite a daunting one. The task becomes even more difficult in this current uncertain scenario. Naturally, individual investors will find it next to impossible to design a winning portfolio of stocks without proper guidance amid this turbulence.
The choice of improper stocks can adversely impact returns, ruining the objective of investing one’s hard-earned money in the highly unpredictable stock market. In a bid to avoid such a scenario, investors usually rely on guidance from proper sources.
In the field of investing, brokers are deemed to be experts with thorough knowledge. We believe that investors should keep an eye on broker-favorite stocks like American Airlines AAL, Boise Cascade BCC, Avnet AVT, Cleveland-Cliffs CLF and Brighthouse Financial BHF for impressive returns.
Why Is Broker Advice Important?
Brokers scrutinize publicly available financial documents and attend company conference calls and other presentations. Since broker recommendation (buy, sell or hold) of a stock comes after thoroughly analyzing the nitty-gritty associated with the company, it is perfect for investors to be guided by their direction of estimate revisions while deciding their course of action on a particular stock.
The estimate revisions serve as an important pointer regarding the price of a stock. In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade. Estimates can move north for a number of reasons, including a favorable earnings performance, bullish guidance, product launch or an optimistic macro scenario. 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.
Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it is taken into consideration. The price/sales ratio takes care of the company’s top line, making the strategy foolproof.
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 criterion 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:
American Airlines: It is based in Fort Worth, TX. The gradual increase in air travel demand (particularly for leisure) is aiding AAL. However, high operating costs are hurting the bottom line.
Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has been revised 13% upward. AAL currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Boise Cascade Company: Based in Boise, ID, this company makes wood products and distributes building materials in the United States as well as Canada. Although BCC acknowledges that the industry will face challenges during 2023, given the current economic uncertainties and weaker near-term demand for new residential construction, it remains well-positioned to execute the growth initiatives started in 2022.
Boise Cascade, currently carrying a Zacks Rank #2 (Buy), has also been increasing commodity offerings that will instill growth in the existing and underserved markets, and across its entire national footprint. The Zacks Consensus Estimate for current-year earnings has increased 5.4% over the past 60 days.
Avnet is benefiting from robust demand for its products across Asia, Europe, the Middle East and Africa regions. Improvement in the Americas also served as a tailwind. Its continued focus on boosting IoT capabilities is helping it expand in the newer markets and win customers. Moreover, cost-saving efforts are aiding profitability.
Avnet, currently carrying a Zacks Rank of 3, has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 7.99%.
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 current-quarter earnings has been revised 4.3% upward. Cleveland-Cliffs currently carries a Zacks Rank #3.
Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States. A compelling suite of life and annuity products, strong market presence, exit from the transition service agreement and growing individual insurance and investment income should drive growth for this Zacks Rank #3 insurer.
The Zacks Consensus Estimate for current-year earnings has increased 28% from the year-ago actual earnings figure. The company has surpassed the Zacks Consensus Estimate for earnings in two of the past four quarters (missing the mark in the other two).
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.
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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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Avnet, Inc. (AVT) : Free Stock Analysis Report
Cleveland-Cliffs 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
Brighthouse Financial, Inc. (BHF) : Free Stock Analysis Report
