The sole aim of investors, while designing their portfolio, is to generate handsome returns. However, with a huge number of stocks flooding the market at a particular point of time, the task is anything but simple, more so in the face of time constraints.
In fact, the stock market is not an easy place and one needs thorough knowledge to rake in profits. This is where some guidance comes in handy. To get proper guidance, investors often fall back on expert advice while arriving at their investment decision (buy, sell or hold). The experts in the field of investing are brokers. This is because brokers have at their disposal a lot more information on a company and its prospects than individual investors.
Brokers, irrespective of their types (sell-side, buy-side or independent), undertake thorough research of the stocks covered by them. They go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations. Therefore, the opinion of brokers can act as a valuable guide for investors.
Earnings Estimate Revisions
Since brokers indulge in thorough research, the question of their actions being arbitrary does not arise. Estimate revisions also serve as an important pointer regarding the price of a stock. In fact, an increase in estimates normally leads to stock price appreciation and vice versa.
One of the well-accepted investment strategies is to maintain a diversified portfolio to generate handsome returns irrespective of the market conditions. For instance, in the face of extremely low oil prices, analysts adopt a bullish stance on airline stocks and consequently raise estimates. Naturally, adding such stocks to one’s portfolio in such a scenario might prove to be a winning strategy.
Similarly, analysts might turn bearish and trim estimates, thereby downgrading a stock, following adverse events like lackluster earnings or pipeline failure (for a biotech player). Naturally, investors would look to get rid of such stocks from their portfolio on the basis of broker advice.
Designing a Winning Portfolio
To take care of the performance with respect to the bottom line, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the last four weeks.
While we have talked about the bottom line in detail, the top line (revenue portion) cannot be ignored. The price/sales ratio has been clubbed with the above criteria as it is a strong complementary valuation metric in the presence of analyst information. The price/sales ratio takes care of the company's top line, making the strategy foolproof.
# (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 four 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 four 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 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 takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
The Andersons, Inc. ANDE: This Maumee, OH, based company is a diversified company operating six different business segments, ranging from buying, selling and storing grain to leasing railcars and running retail stores catering to the latest home hardware needs. This Zacks Rank #1 (Strong Buy) stock has witnessed the Zacks Consensus Estimate for current-year earnings being revised 9.8% upward over the last 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Boise, ID, Boise Cascade Company BCC is the leading constructer of engineered wood products. This Zacks Rank #1 stock has seen the Zacks Consensus Estimate for current quarter and current year earnings being revised 33.3% and 17.6% upward, respectively, over the last 30 days.
Bristow Group BRS is a leading provider of helicopter services for major transportation operations in the United States, Gulf of Mexico and the North Sea and other major offshore oil and gas producing regions of the world, including Alaska, Australia, Brazil, Mexico, Nigeria, Russia and Trinidad. The company, based in Houston, TX, has delivered an impressive earnings surprise of 27.8% in the most recent quarter. It has seen its stock price rally in excess of 30% over the last six months. The stock carries a Zacks Rank #3.
Leawood, KS-based AMC Entertainment Holdings, Inc. AMC is engaged in the theatrical exhibition business. The projected earnings growth rate (3-5 years) for AMC Entertainment Holdings is an impressive 10%. The stock carries a Zacks Rank #3.
Dillard’s, Inc. DDS operates as a fashion apparel, cosmetics and home furnishing retailer in the United States. This Zacks Rank #1 stock has seen the Zacks Consensus Estimate for current quarter earnings being revised 21.3% upward over the last 30 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 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.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Bristow Group Inc (BRS) : Free Stock Analysis Report
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report
Dillard's, Inc. (DDS) : Free Stock Analysis Report
The Andersons, Inc. (ANDE) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research