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5 Stocks in Focus on Recent Broker Rating Upgrades

The Q2 earnings reporting cycle is off to an impressive start. The rosy picture is substantiated by the latest Earnings Outlook . According to the report, of the 48 S&P 500 members that have reported thus far, 89.6% came up with better-than-expected earnings per share and 83.3% outperformed on the revenue front. Moreover, total earnings and revenues for these companies displayed 23% and 10% year-over-year growth, respectively.

What is more heartening is that this bullish picture is likely to continue throughout the earnings season. According to the report, stocks in this highly sought-after group are expected to record top and bottom-line growth of 8.3% and 20.4% respectively.

Given this highly bullish backdrop, investors would like to add outperformers to their portfolios for healthy returns. This is because an earnings beat generally leads to stock price appreciation.

However, the task is far from easy with a plethora of companies present in the market. Moreover, the complexities associated with the stock market make it even more difficult for individual investors to select outperformers in their portfolios in the absence of proper guidance.

This is where brokers are important as they have a lot more information on a company and its prospects than individual investors. Of the three types of brokers/analysts (sell-side, buy-side and independent) present in the investment world, sell-side analysts are most common. Various brokerage firms employ them to provide unbiased opinion to investors after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors.

Brokers, not only scrutinize the publicly available financial documents, but also attend company conference calls and other presentations. Naturally, it is in the best interest of investors to pay heed to such well-researched information as they aim to generate maximum returns from their portfolio.

Brokers revise their earnings estimates after carefully examining the pros and cons of an event for the concerned stock. Naturally, their stock related actions (upgrade or downgrade) serve as an invaluable guide as far as fixing target price of stock (s) is concerned. In fact, a rating upgrade normally leads to stock price appreciation and vice versa.

The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions to earnings estimates over the last four weeks. Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it has been included. The price/sales ratio takes care of the company's top line, making the strategy foolproof.

Screening Criteria

# (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.

To ensure that the strategy is a winning one, covering all bases, we have added the following screening parameters:

Price-to-Sales = Bot%10 : The lower the ratio the better, companies meeting this criteria are in bottom 10% of our universe of over 7,700 stocks with respect to this ratio.

Price greater than 5 : A stock trading below $5 will not likely create significant interest for 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 if one judges by market capitalization.

Com/ADR/Canadian= Com : This eliminates the ADR and Canadian stocks.

Here are five of the 10 stocks that made it through the screen:

Bunge LimitedBG is an integrated global agribusiness and food company spanning the farm-to-consumer food chain. This Zacks Rank #3 (Hold) company is based in White Plains, NY. The Zacks Consensus Estimate for current-year earnings improved 7.8% over the last 60 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

NOW Inc.DNOW is based in Houston, TX.This Zacks Rank #1 company is one of the leading distributors to energy and industrial markets globally. The Zacks Consensus Estimate for current-year earnings improved 15.4% over the last 60 days.

Dean Foods CompanyDF , based in Dallas, TX, is a leading processor and distributor of milk and other dairy products in the United States as well as a leading manufacturer of various specialty food products. This Zacks Rank #3 company has a healthy 13.3% expected EPS growth rate for three to five years.

Cooper Tire & Rubber CompanyCTB , headquartered in Findlay, OH, manufactures and markets tires and related products. The stock carries a Zacks Rank #3. The company's expected EPS growth rate for three to five years currently stands at 4%.

Dillard's, Inc.DDS operates retail department stores primarily in the Southeastern, Southwestern, and Midwestern areas of the United States.The stock sports a Zacks Rank #1. The Zacks Consensus Estimate for current-year earnings improved 3.4% over the last 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 test 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.

Click here to sign up for a free trial to the Research Wizard today .

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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Dean Foods Company (DF): Free Stock Analysis Report

NOW Inc. (DNOW): Free Stock Analysis Report

Dillard's, Inc. (DDS): Free Stock Analysis Report

Cooper Tire & Rubber Company (CTB): Free Stock Analysis Report

Bunge Limited (BG): 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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