I'm sure we've all had the pleasure of waking one morning and
seeing that a broker has upgraded one of our stocks. Usually that
stock is in for a good day and likely for several days or more
Unfortunately, we've probably all had the experience of waking up
and seeing one of our stocks downgraded too. Usually that stock is
in for a rough day, and probably more days to follow.
And while nobody can perfectly predict an upgrade or guard against
a downgrade, it's important to know how the market reacts to these
things. This is so you can stay in your upgraded winners (or buy if
you're on the fence) and consider getting out if a downgrade comes
One thing I've been doing lately is screening for stocks that have
recently seen a broker rating upgrade. Tests have proven that
stocks with broker rating upgrades outperform those that don't get
upgraded and outperform even more substantially those stocks that
By how much?
I created three screens and ran some tests over the last 10 years.
And I applied all the below criteria to stocks trading >= $5
with an average daily trading volume of >= 100,000.
In screen 1: I backtested only those companies with broker rating
In screen 2: I tested companies with no rating change at all.
Whatever the rating was, good or bad, there was no change.
And in screen 3: I screened only those companies that received
broker rating downgrades.
The tests pretty much confirmed what I had already suspected - but
the magnitude was a lot larger than I thought.
The broker rating upgrades over the last 10 years showed an average
annual return of 10.4%.
The ones with no rating change at all showed an average annual
rerun of 6.1%.
And the stocks with broker rating downgrades actually showed a loss
So the upgrades beat the ones with no rating change by nearly twice
as much. And they outperformed those with downgrades even more. In
fact, that was the difference between making money and losing
Below are 5 stocks that have all been upgraded within the last 4
- Fresh Del Monte Produce Inc.
- Home Loan Servicing Solutions, Ltd.
- Michael Kors Holdings Ltd.
- Stratasys, Inc.
- The Travelers Companies, Inc.
Get the rest of the stocks on this list and sign up for your free
trial of the Research Wizard. Start using this idea in your own
screens and start putting your own ideas to the test. It's easy to
do and you'll be on your way to picking better stocks immediately.
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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:
FRESH DEL MONTE (FDP): Free Stock Analysis
HOME LOAN SERVC (HLSS): Free Stock Analysis
MICHAEL KORS (KORS): Free Stock Analysis Report
STRATASYS INC (SSYS): Free Stock Analysis
TRAVELERS COS (TRV): Free Stock Analysis Report
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