Buy These 5 Stocks With Solid Sales Growth for the New Year
With the turbulent 2022 coming to an end, it’s time for investors to re-assess their portfolio and investment strategy for the New Year. While recent economic data point to the effectiveness of the Federal Reserve’s ultra-aggressive monetary tightening, we are still not out of the woods. The central bank is expected to keep interest rates high till inflation comes down reasonably.
This has made investors wary, as higher rates will likely lead to a recession/economic slowdown in 2023. So, a conventional stock-picking strategy is the need of the hour, which will help generate solid returns. One such method is choosing stocks with steady sales growth. In this regard, stocks like Deere & Company DE, Atlas Corp. ATCO, First Citizens BancShares, Inc. FCNCA, LPL Financial Holdings Inc. LPLA and Unum Group UNM are worth a look.
While evaluating any company, revenues are often more analyzed than earnings. This is because investors want to make sure that a business has the capability of generating more sales over time to cater to an expanding customer base. Steady or declining sales growth reflects obstacles at the company. Stagnant companies may generate profit in the near term but do not ensure enough growth to attract new investors.
Without solid revenue growth, bottom-line improvement may not be sustainable. While a company can show earnings strength by lowering costs, persistent bottom-line growth usually requires robust sales growth.
Nonetheless, sales growth alone doesn’t indicate much about a company’s prospects. So, taking into consideration a company’s cash position along with its sales number can prove to be a sensible investment strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments.
Selecting the Potential Winning Stocks
To shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow of more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 14 stocks that qualified the screening:
Deere, based in Moline, IL, is the world’s largest producer of agricultural equipment. DE has been manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme.
Deere’s expected sales growth rate for fiscal 2023 is 13.3%. The stock carries a Zacks Rank #2 at present.
London-headquartered Atlas Corp operates as an asset manager and operator of containerships. ATCO operates as an independent charter owner and manager of containerships.
Atlas Corp.’s expected sales growth rate for 2023 is 12%. The stock currently carries a Zacks Rank #2.
Raleigh, NC-based First Citizens is a financial holding company that provides retail and commercial banking services. FCNCA, with more than $100 billion in assets and roughly 550 branches in 22 states, is one of the top 20 U.S. financial institutions.
First Citizens’ sales are expected to rise 10.4% in 2023. The stock sports a Zacks Rank #1 at present.
LPL Financial, based in Boston, MA, is a clearing broker-dealer and an investment advisory firm. LPLA acts as an agent for its advisors, on behalf of their clients, by providing access to a broad array of financial products and services.
LPL Financial’s expected sales growth for 2023 is 14.8%. The company, at present, sports a Zacks Rank #1.
Chattanooga, TN-headquartered Unum was created following the merger of Provident Companies, Inc. and Unum Corporation. Along with disability insurance, UNM provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services.
Unum’s expected sales growth rate for 2023 is 2.2%. The stock currently carries a Zacks Rank #2.
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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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Deere & Company (DE) : Free Stock Analysis Report
Unum Group (UNM) : Free Stock Analysis Report
First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report
LPL Financial Holdings Inc. (LPLA) : Free Stock Analysis Report
Atlas Corp. (ATCO) : Free Stock Analysis Report
