The Fed Chairman Jerome Powell’s message at the annual Jackson Hole Symposium last week clearly drove home the point that the central bank will maintain its hawkish stance. The Fed intends to raise interest rates and keep the same intact until the inflation rate returns to at least near its 2% target level.
The Fed’s resolute stance on taming the sky-high inflation is likely to lower consumer as well as business spending due to margin squeeze. Such a scenario might push the U.S. economy into a recession. The Fed chief’s comments and the associated fears of a recession meant no respite for the equity markets, which have been witnessing a downside lately.
Most market watchers expect the Fed to hike rates by another 75 basis points at its next FOMC meeting in September. With inflationary pressure unlikely to die soon, markets are likely to stay volatile in the near term. Despite the current turmoil, evading equities is never advisable for investors. So what’s the way out to reap handsome returns from one’s portfolio amid unprecedented times?
One ideal solution is to stick to broker advice. Broker-friendly stocks like ArcBest Corporation ARCB, Clearwater Paper Corporation CLW, CVR Energy CVI, Ashford Hospitality Trust AHT and Hibbett HIBB are worth betting on for healthy returns.
As brokers indulge in extensive research on stocks under their coverage, they have access to much detailed dope on a company. To this end, they attend company conference calls/presentations and scrutinize every piece of document available in the public domain before instructing investors.
Direction of Earnings Estimates: A Good Pointer
Since brokers follow the stocks in their coverage with great detail, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. The estimate revisions serve as an important pointer regarding the price of a stock.
For example, an earnings outperformance by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings often cause stock price depreciation. Naturally, paying heed to such well-researched information stands investors in good stead in their bid to glean attractive returns from their respective portfolios. Consequently, investors tend to be guided by the direction of estimate revisions and the stock price while formulating their investment strategy.
Making the Most of Broker Knowhow
The above write-up clearly suggests that by following broker actions, one can arrive at a promising basket of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on improving analyst recommendations and upward earnings estimate revisions over the last four weeks.
Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it is also considered. The price/sales ratio takes care of the company’s top line, making the strategy effective.
# (Up-Down Rating)/ Total (4 weeks) =Top #75: This gives the list of top 75 companies that have witnessed net upgrades over the last 4 weeks.
% change in Q (1) est. (4 weeks) = Top #10: This gives the top 10 stocks that have witnessed earnings estimate revisions over the past 4 weeks for the upcoming quarter.
Price-to-Sales = Bot%10: The lower the ratio, the better. Companies meeting this criterion are in the bottom 10% of our universe of over 7,700 stocks.
Price greater than 5: A stock trading below $5 will not likely be of significant interest to most investors.
Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded.
Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000 in terms of market capitalization.
Com/ADR/Canadian= Com: This takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that passed the screen:
ArcBest, a provider of freight transportation and integrated logistics services,currently carries a Zacks Rank #2 (Buy). ARCB’s earnings trumped the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.3%. The Zacks Consensus Estimate for ARCB’s 2022 earnings has been revised 6.1% upward in the past 60 days.
Improving freight conditions in the United States bode well for ArcBest. Solid customer demand and higher market rates are supporting ARCB.
Clearwater Paper, which manufactures and supplies bleached paperboards and consumer and parent roll tissues, is being aided by robust packaging demand. CLW’s commitment to reducing its debt levels and deploying a prudent capital structure provides ample liquidity. Continued focus on operational execution will drive margins.
The Zacks Consensus Estimate for Clearwater Paper’s 2022 earnings has been revised 13.9% upward in the past 60 days. CLW, currently sporting a Zacks Rank #1 (Strong Buy), has an impressive surprise history with its earnings having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one), the average beat being 28.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy is an independent refiner and marketer of high-value transportation fuels. CVI is also a producer of ammonia and urea ammonia nitrate fertilizers. CVI's petroleum business includes full-coking sour crude refinery in Coffeyville, KS. Its efforts to reward its shareholders underline its strong financial position. The robust Nitrogen Fertilizer unit is supporting growth.
CVR Energy, currently carrying a Zacks Rank #2, has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 32.1% over the past 60 days.
Ashford Hospitality Trust is a real-estate investment trust (REIT), well-served by the uptick in hotel revenues, constituting the bulk of its top line. In first-half 2022, hotel revenues soared 83.1% year over year, driven mainly by increased demand.
AHT, currently carrying a Zacks Rank of 2, has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 19.4% over the past 60 days.
Hibbett has been benefiting from its progress on the e-commerce front and the expansion of its loyalty program. HIBB deepens focus on expanding the customer base by connecting with more customers through e-commerce and selective store extension. HIBB evolved its offerings from sports goods to an athletic-inspired fashion-focused assortment.
Hibbett is currently Zacks #2 Ranked and has an expected earnings growth rate of more than 51.2% for the current quarter. The Zacks Consensus Estimate for current-year earnings has inched up 2% over the past 60 days.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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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Hibbett, Inc. (HIBB): Free Stock Analysis Report
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ArcBest Corporation (ARCB): Free Stock Analysis Report
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