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4 Top-Ranked Earnings Plays Geared for Growth

Who doesn't want a portfolio that generates higher returns? However, a mixed bag of events is leaving investors perplexed about the stocks to count on. The markets have been on a roller coaster ride in the recent past - either due to the flagging Chinese economy, the Eurozone debt crisis or the U.S. Federal Reserve's pending decision over the first rate hike that has been put to rest (at least for now). Hence, investors are busy gauging the market mood to pick the right stock for their portfolio.

The disappointing jobs report for the month of September has put a big question mark over the health of the U.S. economy that started to look rosy with GDP up 3.9% in the second quarter and consumer confidence improving to 103 in September from the August reading of 101.3. Although the unemployment rate remained constant at 5.1% in September, the economy only added 142,000 jobs compared with analysts' estimates of 205,000. Moreover, the jobs number for August was revised down to 136,000 from 173,000 originally reported.

The downbeat picture is enough to unnerve investors as it points toward a slowing economy, which according to industry experts is projected to increase marginally over 1% in the third quarter. The above report shows that the growth questions that prompted the Fed to hold off on raising rates last month aren't restricted to China and the global economy alone - they are equally centered on the domestic economic scenario. Investors also remained worried about persistent weakness in the energy sector and a strengthening dollar.

It is quite apparent that the market has witnessed a slew of events and to fetch higher returns in such an investment climate is a difficult task. Well, now there are two choices in front of you; either be a mute spectator and wait for a convincing economic environment, or be a front-runner by identifying stocks that have the potential to outperform even when market conditions are not congenial. So what are the 3 ingredients a stock must have to make an optimum portfolio? Let's find out.

Ingredients to Optimize Your Portfolio

The stocks must carry a Zacks Rank #1 (Strong Buy) or #2 (Buy), should have a positive Earnings ESP and possess a Growth Style Score of "A" (or "B"). A favorable rank indicates positive estimate revisions by analysts who are optimistic on the future performance of companies. Moreover, Earnings ESP is our proprietary methodology for identifying stocks that have the best chance of surprising with their next earnings announcement.

Zacks has also designed the new Style Score System . The attractiveness of a stock as an investment option is confirmed by its Growth Style Score of A (or B). The Growth Style Score combines conventional growth metrics with a thorough analysis of the company's income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Our research shows that stocks with Growth Style Scores of A or B when combined with a Zacks Rank #1 or #2 offer the best upside potential.

4 Stocks with Right Ingredients

We suggest investing in Delta Air Lines, Inc.DAL , which has an Earnings ESP of +1.18% and a Growth Score of A. The current Zacks Consensus Estimate for the third quarter of 2015 stands at $1.70 per share, reflecting 41.8% growth from the prior-year quarter. This Atlanta-based provider of scheduled air transportation for passengers and cargo globally, registered an average positive earnings surprise of 3% over the trailing four quarters, and has a long-term earnings growth rate of 20.6%. This Zacks Rank #1 company is scheduled to report results on Oct 14.

D.R. Horton, Inc.DHI , which operates as a homebuilding company, is another solid bet, with a Growth Score of A. The stock holds a Zacks Rank #1, and has a long-term earnings growth rate of 15.3%. Based in Fort Worth, TX, the company has delivered an average positive earnings surprise of 6.5% over the trailing four quarters, and has an Earnings ESP of +3.23%. The current Zacks Consensus Estimate for the fourth quarter of fiscal 2015 is pegged at 62 cents a share, reflecting 38% year-over-year growth. The company is slated to report results on Nov 10.

Investors can also count on Walgreens Boots Alliance, Inc.WBA , the operator of a network of drugstores in the U.S. that carries a Zacks Rank #2, Growth Score of B and has an Earnings ESP of +6.17%. The current Zacks Consensus Estimate for the fourth quarter of fiscal 2015 is pegged at 81 cents a share, reflecting 9.4% growth from the year-ago period. This Deerfield, IL-based company registered an average positive earnings surprise of 13.1% over the trailing four quarters, and has a long-term earnings growth rate of 11.9%. The company is scheduled to report results on Oct 28.

Last but not least is Cognizant Technology Solutions CorporationCTSH , with an Earnings ESP of +1.45% and a Growth Score of B. The current Zacks Consensus Estimate for the third quarter of 2015 stands at 69 cents a share, portraying 15.7% growth from the prior-year quarter. Based in Teaneck, NJ, the company delivered an average positive earnings surprise of 5.1% over the trailing four quarters, and has a long-term earnings growth rate of 16%. This Zacks Rank #2 company will report results on Nov 4.

Bottom Line

Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses strong fundamentals, promises price movement and highlights analysts' constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

COGNIZANT TECH (CTSH): Free Stock Analysis Report

DELTA AIR LINES (DAL): Free Stock Analysis Report

D R HORTON INC (DHI): Free Stock Analysis Report

WALGREENS BAI (WBA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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