Here's How to Find 'Strong Buy' Stocks in 2023
The S&P 500 closed lower on Monday after starting the session strongly, while the Nasdaq gave up a much larger gain to finish the day 0.6% higher. The swings on Monday and at the end of last week extend the bout of choppiness and volatility that could remain with the market for a while.
Stocks were up slightly through mid-day trading on Tuesday after Jay Powell spoke in Stockholm. The Fed boss has not wavered from his commitment to dragging down inflation since the Fed first began its tightening efforts.
Powell on Tuesday reiterated the central bank’s willingness to cause economic pain in order to bring inflation down to the Fed’s 2% target range. “Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time,” Powell said in prepared remarks from a panel in Stockholm.
The market surged last Friday after the Labor Department said employers added the smallest number of new jobs in roughly two years in December, with average hourly earnings up 4.6% last month vs. the 5.6% peak in March.
Salesforce, Amazon, Goldman Sachs, and Coinbase are some of the higher-profile companies that are set to lay off a large number of employees. Despite the highly-publicized layoffs, the December jobs data showed that some industries remain in hiring mode, with overall unemployment at a 50-year low of 3.5%.
Thankfully, Wall Street will gain more clarity as to what might be next when December’s CPI data is released on Thursday, January 12. On top of that, the big banks unofficially kick off what could prove to be a pivotal fourth quarter earnings season on Friday.
All of the unknowns might have some investors rushing to the sidelines. And it is certainly prudent to grow your cash pile in order to deploy if the market falls again in the coming weeks and months. But market timing is extremely difficult and many stocks managed to climb in 2022 and in recent months, especially ones that have provided upbeat bottom-line guidance.
With this in mind, investors can utilize the Filtered Zacks Rank 5 Stock Screen to help find potentially winning stocks for January and beyond in 2023 that have boosted their earnings guidance even as the larger EPS outlook slides lower.
Zacks Rank #1 (Strong Buy) stocks outperform the market in both good and bad times. However, there are over 200 stocks that earn a Zacks Rank #1 at any given time. Therefore, it’s helpful to understand how to apply filters to the Zacks Rank in order to narrow the list down to a more manageable and tradable set of stocks.
Parameters
Clearly, there are only three items on this screen. But together, these three filters can result in some impressive returns.
• Zacks Rank equal to 1
Starting with a Zacks Rank #1 is often a strong jumping off point because it boasts an average annual return of roughly 24.4% per year since 1988.
• % Change (Q1) Est. over 4 Weeks greater than 0
Positive current quarter estimate revisions over the last four weeks.
• % Broker Rating Change over 4 Week equal to Top # 5
Top 5 stocks with the best average broker rating changes over the last four weeks.
This strategy comes loaded with the Research Wizard and is called bt_sow_filtered zacks rank5. It can be found in the SoW (Screen of the Week) folder.
Here are two of the five stocks that qualified for the Filtered Zacks Rank 5 strategy today…
NRG Energy NRG
NRG Energy is a utility giant that generates electricity and provides energy solutions and natural gas to millions of customers across business and residential customers through its diverse portfolio of retail brands. NRG Energy is aiming to roll out more digital-focused efforts as electric grids, homes, and businesses grow more high-tech by the day.
NRG Energy made a splash in early December when it announced that it agreed to buy Vivint Smart Home, Inc. (VVNT) for $12 per share or $2.8 billion in an all-cash deal. Wall Street showed its displeasure with NRG Energy seemingly stepping out of its lane to buy the smart home company with offerings that include security, lighting, and beyond. NRG Energy thinks the acquisition will help it prepare for a totally connected future as it brings in a company and its tech that already lives inside people’s homes.
NRG’s recent selloff has it trading around 30% below its highs at roughly $32 per share. NRG is also trading at a 60% discount to its industry at 6.6X forward earnings and 50% below its own 10-year median. NRG Energy’s dividend now yields 4.4%, with a very sustainable 23% payout ratio. Plus, NRG’s earnings outlook for FY23 has surged recently.
Conagra Brands, Inc. CAG
Conagra’s diverse portfolio of packaged foods includes Orville Redenbacher's, Marie Callender's, Hunt's, Healthy Choice, and much more. The company benefited from early coronavirus-focused stockpiling, alongside peers like General Mills (GIS). Conagra has since profited over the last year-plus as shoppers look to save money amid soaring inflation. Conagra’s CFO said recently that the firm is benefitting from a “trade down” to frozen food.
CAG stock is up 20% in the last year, including 20% in the past three months alone to easily top the Food Market’s 8% run. CAG has also outpaced the S&P 500 during the last three years, up 27% vs. 19%. Despite the climb, Conagra is still trading at a discount its industry and right in-line with its 10-year median at 14.9X forward earnings.
The company crushed our Q2 FY23 estimates on January 5 and provided upbeat guidance, which is no easy task at the moment. Zacks estimates call for Conagra to post solid top and bottom-line growth in its current year (FY23) and fiscal 2024. And its dividend yields 3.2% at the moment to easily top its industry’s average.
See the rest of the stocks on this list and start trading the Filtered Zacks Rank 5 (or any of our other strategies) in your own account. Remember, the key to successful screening is finding screens that have produced profitable results in the past. And that's exactly what you get with the Research Wizard stock picking and backtesting program.
Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.
Click here to sign up for a free trial to the Research Wizard today.
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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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NRG Energy, Inc. (NRG) : Free Stock Analysis Report
Conagra Brands (CAG) : Free Stock Analysis Report
