5 Broker-Friendly Stocks to Watch as Inflation Stays Red Hot
Inflation in the United States remains sky-high, implying that market volatility is still rampant. Data released on Sep 13 showed that the Consumer Price Index (CPI) inflation for August 2022 was up 8.3% year over year. The reading was above analysts’ expectations of an 8.1% rise. The greater-than-expected increase came despite a 10.6% decline in gasoline prices. Higher shelter, food and medical care prices caused the high inflation reading. The red-hot inflation data induced fears that consumer spending will decline sharply in the days ahead.
The Fed already hiked interest rates 225 basis points so far this year. The August reading more or less confirms that the Fed will opt for a sharp rate hike (probably another 75-basis-point increase) later this month. Higher interest rates result in the cost of borrowing moving north. This escalates the chances of an economic slowdown.
Despite the current turmoil, shunning equities is never advisable for investors. So what’s the way forward? One ideal solution is to pay heed to broker advice while designing one’s portfolio in the current scenario of high-interest rates. Broker-friendly stocks like American Airlines AAL, CVR Energy CVI, Builders FirstSource BLDR, McKesson MCK and Beacon Roofing Supply BECN are worth keeping on one’s radar for healthy returns amid this market bloodbath.
Why Broker Advice is the Way Forward
Brokers have an in-depth understanding of stocks, great knowledge of the industry and a firm grasp over the broader economy. They scrutinize a company’s fundamentals and weigh the same against the prevalent economic scenario to find out how attractive or creditworthy a stock is as an investment bet.
After thorough research work, brokers recommend (buy, sell or hold) a stock. Such well-researched information is not available to individual investors. So, in the absence of proper guidance, they may end up selecting the wrong stocks for their portfolio. This might waste their hard-earned money, which they invested in the stock markets. To avoid such an unfortunate scenario, it is ideal for investors to be guided by an expert’s know-how while picking a basket of lucrative stocks.
Winning Strategy
The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on improving analyst recommendations and upward revisions of earnings estimates 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 included. The price/sales ratio takes care of a 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 added the following screening parameters:
Price-to-Sales = Bot%10: The lower the ratio the better, companies meeting this criteria are in the 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 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 stock has seen the Zacks Consensus Estimate for 2022 earnings being revised 21.2% upward. AAL currently carries a Zacks Rank #3 (Hold).
CVR Energy is an independent refiner and marketer of high-value transportation fuels. CVI is also a producer of ammonia and urea ammonia nitrate fertilizers. CVI's petroleum business includes full-coking sour crude refinery in Coffeyville, KS. Its efforts to reward its shareholders underline its strong financial position. The robust Nitrogen Fertilizer unit is supporting growth.
CVR Energy, currently carrying a Zacks Rank of 3, has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 17.6% over the past 60 days.
Builders FirstSource focuses on faster-growth categories, disciplined pricing and strategic buyouts. Acquisitions are integral to BLDR’s growth strategy. BLDR recently concluded the buyout of National Lumber, the largest independent building materials supplier in New England. Also, strong demand for single-family housing is steadily supporting top-line growth.
Builders FirstSource has a trailing four-quarter earnings surprise of 88.6%, on average. BLDR currently carries a Zacks Rank #3. The Zacks Consensus Estimate for BLDR’s 2022 earnings has been revised 28.9% upward in the past 60 days.
California-based McKesson is a health care services and information technology company. McKesson is a major player in the pharmaceutical and medical supplies distribution market. MCK has been pursuing deals and acquisitions actively to drive growth.
McKesson currently carries a Zacks Rank #2 (Buy). Its earnings outshined the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 13%. You can see the complete list of today’s Zacks #1 Rank (Strong By) stocks here.
Beacon Roofing is the largest publicly-traded distributor of residential and non-residential roofing materials, and complementary building products in the United States and Canada. BECN is gaining traction from its prudent Ambition 2025 long-term plans, focus on enhancing digital platforms and strategic buyouts.
Beacon Roofing iscurrently Zacks #3 Ranked. Its bottom line outpaced the Zacks Consensus Estimate in each of the last four quarters, the average being 23.3%. The Zacks Consensus Estimate for current-year earnings has been revised 5.2% upward in the past 60 days.
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.
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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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McKesson Corporation (MCK) : Free Stock Analysis Report
Beacon Roofing Supply, Inc. (BECN) : Free Stock Analysis Report
Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
CVR Energy Inc. (CVI) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
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