Betting on March Madness Brackets With Top-Ranked Stocks
The National Collegiate Athletic Association (NCAA) Men's Division I Basketball Tournament, or popularly known as March Madness, started last week and will continue for three weeks. Fans will see the champion being crowned on Apr 5 at Lucas Oil Stadium in Indianapolis. From the round of 64, the tournament has proceeded to ‘Sweet Sixteen’ to be played on Mar 25, ‘Elite Eight’, ‘Final Four’ and ultimately the championship.
The sporting extravaganza is not limited to the sport space but spreads to the investment world as it fuels growth in various corners. As such, millions of Americans are seeking to capitalize this opportunity by enthusiastically filling in the brackets that could lead to handsome returns from the stocks to be wagered on.
Since the tournament has reached Sweet Sixteen, let’s start filling the brackets from this level and then compare those like we do for March Madness to get to the real winner.
How to Pick Sweet 16 Stocks?
Akin to the basketball championship, we have chosen four sectors – industrial products, construction, basic materials, and computer and technology – out of 16 Zacks sectors that have outperformed in a year since hitting their pandemic lows. We have picked the four best industries (within the top 45%) from each sector with the help of the Zacks Industry Rank.
Then, we have picked one stock from each industry having a Zacks Rank #1 (Strong Buy) or 2 (Buy) with the highest market capitalization in order to get the Sweet Sixteen stocks. Top-ranked stocks indicate rising earnings estimates, and those with strong earnings momentum are more likely to outpace the market. This was a cakewalk, courtesy of the Zacks Stock screener. You can see the complete list of today’s Zacks #1 Rank stocks here.
Once the stocks are chosen, one-year performance was considered for the qualifiers to the Elite Eight. Notably, the stocks with the highest industry ranks will match up with the stocks having low industry ranks.
Industrial Products
The four top industries and their best stocks in the industrial products sector are as follows:
1. Wire and Cable Products: Rank in the top 3%; Stock – Encore Wire Corporation WIRE
2. Manufacturing - Electrical Utilities: Rank in the top 3%; Stock – Hubbell Inc HUBB
3. Manufacturing - Material Handling: Rank in the top 3%; Stock – Columbus McKinnon Corporation CMCO
4. Office Supplies: Rank in the top 11%; Stock – Avery Dennison Corporation AVY
WIRE vs. AVY: Avery Dennison edged past Encore Wire’s with a gain of 128.9% versus 68.8% for the latter.
HUBB vs. CMCO: Columbus McKinnon beats Hubbell in the same period, gaining 134.1% against 112% for HUBB.
Construction
The four top industries and their best stocks in the construction sector are as follows:
1. Building Products - Mobile Homes and RV Builders: Rank in the top 1%; Stock – Thor Industries Inc. THO
2. Building Products - Wood: Rank in the top 6%; Stock – Weyerhaeuser Company WY
3. Building Products - Concrete and Aggregates: Rank in the top 13%; Stock – Martin Marietta Materials Inc. MLM
4. Building Products - Home Builders: Rank in the top 14%; Stock – D.R. Horton Inc. DHI
THO vs. DHI: Here, Thor Industries easily outpaced D.R. Horton as it gained about 265% in a year compared with 186% growth for DHI.
WY vs. MLM: Weyerhaeuser is clearly the winner as it has returned nearly 154% in a year versus a gain of 126% for Martin Marietta.
Basic Materials
The four top industries and their best stocks in the basic materials sector are as follows:
1. Chemical - Plastic: Rank in the top 1%; Stock – Westlake Chemical Corporation WLK
2. Steel - Producers: Rank in the top 2%; Stock – ArcelorMittal MT
3. Fertilizers: Rank in the top 10%; Stock – The Scotts MiracleGro Company SMG
4. Chemical - Diversified: Rank in the top 28%; Stock – Dow Inc. DOW
WLK vs. DOW: WLK wins against DOW by a wide margin of 27.5% over the past year.
MT vs. SMG: ArcelorMittal easily defeated The Scotts MiracleGro by climbing 240% versus 210% gain for the latter.
Computer and Technology
The four top industries and their best stocks in the computer and technology sector are as follows:
1. Semiconductor Equipment - Wafer Components: Rank in the top 3%; Stock – Coherent Inc. COHR
2. Semiconductor Memory: Rank in the top 3%; Stock – Micron Technology Inc. MU
3. Electronics - Manufacturing Machinery: Rank in the top 6%; Stock – Entegris Inc. ENTG
4. Electronics - Manufacturing Services: Rank in the top 8%; Stock – Jabil Inc. JBL
COHR vs. JBL: Here, COHR wins over JBL as it has returned 175% in a year versus a gain of 156% for the latter.
MU vs. ENTG: Entegris beats Micron Technology in the same period, gaining 158% compared with 117% gain for MU.
The winners of each industry group will compete against each other in the Elite Eight.
Elite Eight (Mar 27)
Among the eight winning stocks, the highest average earnings surprise over the past four quarters was used to decide the winners of each sector that should advance to the Final Four.
CMCO vs. AVY: Columbus McKinnon has delivered an average earnings surprise of 145.68% versus 13.18% for Avery Dennison. Hence, CMCO wins over AVY.
THO vs. WY: Weyerhaeuser wins with an average earnings surprise of 264.97% over the past four quarters against 86.06% for Thor Industries.
WLK vs. MT: Westlake Chemical wins over ArcelorMittal with its average four-quarter beat being 318.10%, much higher than 13.64% for MT.
COHR vs. ENTG: Here, Coherent is the winner with average earnings surprise of 93.24% as compared with 11.06% for Entegris.
Final Four (Apr 3)
We now have the best stocks from four sectors. To advance to the next level, we have considered the year-over-year earnings growth for fiscal 2021. Let us once again dig into the Zacks Industry Rank of the four stocks to decide the contenders.
Columbus McKinnon Corporation (CMCO) – Zacks Industry Rank in the top 3%
Weyerhaeuser Company (WY) – Zacks Industry Rank in the top 6%
Westlake Chemical Corporation (WLK) – Zacks Industry Rank in the top 1%
Coherent Inc. (COHR) – Zacks Industry Rank in the top 3%
So in the matchups, we have Westlake Chemical and Weyerhaeuser on the one side, and Columbus McKinnon and Coherent on the other.
Westlake Chemical vs. Weyerhaeuser: Westlake Chemical earnings are expected to grow 162.4% while Weyerhaeuser will likely see 52.7% growth. With a higher projected earnings growth rate, WLK wins and advances toward the final round to take on the winner of CMCO vs. COHR.
Columbus McKinnon vs. Coherent: Here, earnings at CMCO are expected to grow 109.5% for the fiscal year (ending March 2022) while COHR earnings will see growth of 84.67% for fiscal year (ending September 2021). As a result, CMCO wins and will face Westlake Chemical for the championship.
The Championship (Apr 5)
Let’s look at the VGM Score (V stands for Value, G for Growth and M for Momentum), which is simply a weighted combination of the three. The VGM score when combined with a Zacks Rank #1 or 2 gives us stocks with the best upside potential along with cheap price, robust growth and strong momentum.
Westlake Chemical wins over Columbus McKinnon with a VGM Score of B against D for the latter.
Result
Based on our internal research and metrics, Westlake Chemical, having a Zacks Rank #1 and a VGM Score of B emerges as the winner of the 2021 March Madness contest and could be a top bet for this year. While it was exciting and fun to dribble toward the winning stock, we expect the twists and turns in the NCAA tournament to lead to some dramatic moves in the investment world.
Zacks Names “Single Best Pick to Double”
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Westlake Chemical Corporation (WLK) : Free Stock Analysis Report
Micron Technology, Inc. (MU) : Free Stock Analysis Report
Avery Dennison Corporation (AVY) : Free Stock Analysis Report
Weyerhaeuser Company (WY) : Free Stock Analysis Report
Jabil, Inc. (JBL) : Free Stock Analysis Report
ArcelorMittal (MT) : Free Stock Analysis Report
Dow Inc. (DOW) : Free Stock Analysis Report
Columbus McKinnon Corporation (CMCO) : Free Stock Analysis Report
The Scotts MiracleGro Company (SMG) : Free Stock Analysis Report
Martin Marietta Materials, Inc. (MLM) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
Coherent, Inc. (COHR) : Free Stock Analysis Report
Encore Wire Corporation (WIRE) : Free Stock Analysis Report
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