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5 Exceptional Value Picks to Brave Q4 Estimate Decline

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Earnings performance is the quintessential topic of interest for every stock investor. This is because earnings dictate the growth or contraction of companies as well as their stocks. As such, a strong earnings number is a pivotal factor for investors eyeing a particular company, especially amid a globally weak economic backdrop. Talking about earning and weakness, let us briefly glance through the third-quarter earnings season.

A Peek at the Q3 Earnings Season

The third quarter of 2015 was quite similar to the preceding quarter, with the continuation of weak earnings performance. But did the results really surprise? Well, they did not, thanks to the macro headwinds.

On one hand, a free fall in oil prices weighed upon the energy sector earnings. On the other, the prevalent low interest rate environment exerted revenue pressure on financial stocks. This apart, slowdown in China, the world's second largest economy, significantly impacted commodity prices and related industries. As such, top-line weakness was noted commonly during the quarter.

In fact, combining results from 455 S&P 500 companies (that reported results as of Nov 11) and the still-awaited results (as of Nov 11) from 45 index members, total earnings for the index are expected to be down 2.8% year over year due to a 4.1% decline in revenues. Excluding Energy, total earnings for the index are expected to be up 3.6% in third quarter helped by 1% higher revenues.

How are Estimates Trending for Q4?

A currently weak global economic scenario, along with guidance provided by companies, has made analysts increasingly doubtful about near-term earnings prospects of various companies. This is evident from the accelerated drop in fourth-quarter earnings estimates for the S&P 500 index from negative 1.1% in mid-September to negative 6.4% as of Nov 11.

In fact, the magnitude of negative revisions in fourth-quarter earnings estimates is greater than what we have seen in comparable periods for the preceding two quarters.

Exceptions Always Exist

The above-mentioned negative estimate revisions might have made investors apprehensive regarding investment in the market right now. However, these numbers take into account estimates for a wide array of stocks. This means that while estimates are moving south for a majority of these companies, analysts are also becoming bullish on the earnings prospects of a few "exceptional" stocks.

Zacks Methodology to the Rescue

As we mentioned previously, earnings determine a company's future prospects. As such, stocks that are seeing positive earnings estimate revisions become a top choice for investors. With the help of our Zacks Stock Screener , we have identified 5 exceptional stocks, which have seen fourth-quarter earnings estimates revising more than 10% upward over the last four weeks. Such revisions have earned them a Zacks Rank #2 (Buy) or better.

Additionally, since many investors like to look for value in stocks, with our new style score system , we have shortlisted stocks carrying a value score of 'A'. The Zacks Value Style Score condenses various valuation metrics into one score that provides a true measure of the stock's intrinsic value. As such, a Value Style Score of 'A' (or 'B') is highly desirable, particularly when accompanied with Zacks Rank #1 (Strong Buy) or #2 (Buy).

5 Exceptional Shooting Stars

Fitbit Inc.FIT : A manufacturer of wearable fitness tracking devices, this stock is "fit" enough to be a part of your portfolio. The company specializes in wearable activity tracking devices that record personal data, such as the number of steps taken, distance traveled, calories burned, and other wellness-related metrics. Headquarter in San Francisco, Fitbit sells its products primarily through retailers and distributors.

% Change in Q1 Estimates (4 weeks): 46.3

Zacks Rank #2

Chesapeake Energy CorporationCHK : Surprised? Yes, analysts have become increasingly bullish about earnings of this energy stock. Based in Oklahoma, Chesapeake Energy is an independent oil and gas company engaged in acquisition, development, and production of onshore U.S. natural gas resources. The company has grown rapidly and is now the second-largest natural gas producer in the U.S., as well as the eleventh-largest producer of oil and natural gas liquids in the U.S.

% Change in Q1 Estimates (4 weeks): 38.6

Zacks Rank #2

Canadian Solar Inc.CSIQ : Canadian Solar is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. The Ontario-headquartered company has 8 wholly owned manufacturing subsidiaries, and sells its products to customers worldwide with operations spread across 20 countries.

% Change in Q1 Estimates (4 weeks): 34.2

Zacks Rank #2

Heritage Insurance Holdings, Inc.HRTG : Based in Clearwater, FL, Heritage Insurance provides personal residential insurance for single-family homeowners and condominium owners. Recently, the company inked a deal to acquire Zephyr Insurance Company, thereby extending footprints into Hawaii, where Zephyr offers specialty insurance services.

% Change in Q1 Estimates (4 weeks): 18

Zacks Rank #1

SkyWest Inc.SKYW : Based in St. George, UT, SkyWest operates as one of the larger regional airlines in the U.S. The company, providing passenger & air freight services, completes over 880 flights on a daily basis.

% Change in Q1 Estimates (4 weeks): 17.9

Zacks Rank #1

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

CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

CANADIAN SOLAR (CSIQ): Free Stock Analysis Report

SKYWEST INC (SKYW): Free Stock Analysis Report

FITBIT INC (FIT): Free Stock Analysis Report

HERITAGE INSUR (HRTG): 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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