5 Stocks Favored by Brokers Amid the Current Uncertainty
The hotter-than-expected inflation reading in January clearly shows that we are not out of the woods as far as inflation in the United States is concerned. The unfavorable inflation report casts doubt on the possibility of the Federal Reserve cutting interest rates even in May, let alone in March.
By maintaining high interest rates, the Fed aims to slow down demand by making borrowing money more expensive. The hotter-than-expected inflation reading dented consumers’ confidence, leading to a widespread selloff with a decline in major indices. With rate cuts not a possibility, at least in the near term, market turbulence is unlikely to go away any time soon.
However, this uncertain scenario does not mean that investors should turn their backs on stocks. In fact, broker-loved stocks like Deutsche Bank AG DB, Cross Country Healthcare CCRN,Bread Financial BFH, American Axle AXL and Cardinal Health CAH are worth holding on to for healthy returns despite the turbulence.
Broker Advice – The Way Forward
In view of the prevalent uncertainty, the task of designing a portfolio of stocks for lucrative returns is by no means an easy task. Furthermore, with a plethora of stocks present in the market at any point in time, spotting potential outperformers is tough for individual investors. In the absence of proper guidance, identifying a winning stock is akin to searching for “a needle in a haystack.”
Given this backdrop, it is in the best interest of investors to seek guidance from “experts in the field." The concerned experts are brokers. Brokers have a deeper insight into what’s happening in a particular company, along with a better understanding of the overall sector and the industry.
To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations.
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 — a favorable earnings performance, a bullish guidance, a 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.
Making the Most of Broker Opinions
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 have designed a screen to shortlist stocks based on improving analyst recommendations and upward revisions to 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 has been included. 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 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.
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:
Deutsche Bank, based in Germany, is one of the largest financial institutions in the world, as measured by total assets. DB offers a wide variety of investment, financial and related products and services. Deutsche Bank’s solid deposit balances support its financials.
DB currently sports a Zacks Rank #1 (Strong Buy). The bank surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark in the other one), the average beat being 18.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cross Country Healthcare is a national leader in providing innovative healthcare workforce solutions and staffing services. CCRN’s diverse client base supports the company’s growth.
CCRN’s expected earnings growth rate for the next five-year period is 10%. CCRN, currently, has a Zacks Rank #3 (Hold). Over the past 60 days, the Zacks Consensus Estimate for the company’s current-quarter earnings has remained stable.
Based in Columbus, OH, Bread Financial continues to benefit from data-driven marketing strategies. Solid receivables growth in Card Services should drive its top line. Acquisitions and divestitures will aid the company in growing inorganically and expanding its international footprint.
Over the past 60 days, the Zacks Consensus Estimate for BFH’s current-quarter earnings has been revised 19% upward. Bread Financial currently carries a Zacks Rank #3.
American Axle’s significant strides and collaborations in the electric drive space bode well for its top- and bottom-line growth. Efforts aimed at diversifying its business, products and customer base are generating impressive results for the company.
American Axle has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in three of the last four quarters (missing the mark on the other occasion). AXL currently carries a Zacks Rank #3.
Ohio-based Cardinal Health is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. CAH’s diversified product portfolio bodes well and should drive growth.
Cardinal Health, currently carrying a Zacks Rank of 2 (Buy), has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 19.6%.
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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Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
American Axle & Manufacturing Holdings, Inc. (AXL) : Free Stock Analysis Report
Cross Country Healthcare, Inc. (CCRN) : Free Stock Analysis Report
Bread Financial Holdings, Inc. (BFH) : Free Stock Analysis Report
