With the first-quarter earnings season picking up pace, investors are showing interest in stocks that have beat estimates or are expected to do so. Generally, an earnings beat by a company leads to an uptick in its stock price. Similarly, a stock is much in demand after the company has issued an upbeat guidance while releasing the quarterly numbers.
However, with a deluge of earnings reports flooding the market, picking outperformers or well-performing stocks is by no means an easy task for individual investors. In the absence of proper guidance, identifying a winning stock is akin to searching for 'a needle in a haystack' for an investor. Proper guidance, in this respect, comes from brokers, who are deemed to be experts, equipped with in-depth knowledge and know how as far as the field of investing is concerned.
Of the three types of brokers/analysts (sell-side, buy-side and independent) present in the investment world, sell-side analysts are the 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. The estimate revisions serve as an important pointer regarding the price of a stock.
Making the Most of What Brokers Say
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 also been included. The price/sales ratio takes care of the company's top line thereby making the strategy foolproof.
# (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.)
We have also added the following screening parameters to ensure that the strategy is a winning one:
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 with respect to this ratio.)
Price greater than 5 (as a stock trading below $5 will not likely create significant interest for most of the investors.)
Average Daily Volume greater than 100,000 shares over the last 20 trading days (Volume has to be significant to ensure that these are easily traded.)
Market value ($ mil) = Top #3000 (This gives us stocks that are in 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 made it through the screen:
Bunge Ltd.BG : Based in White Plains, NY, Bunge is a leading agribusiness and food company with over 35,000 employees and operations in multiple countries. It is a global leader in oilseed processing, and grain and oilseed marketing. This Zacks Rank #3 (Hold) company has an impressive record with respect to earnings, having surpassed the Zacks Consensus Estimate in three out of the last four quarters, by an average of 45.81%.
Avid Technology Inc.AVID : This Zacks Rank #2 (Buy) company develops, markets, sells, and supports a wide range of software and systems for creating and manipulating digital media content. The company delivered an impressive earnings surprise of 80% in its most recent earnings report.
Dana IncorporatedDAN is a provider of technology driveline, sealing and thermal-management products. The Zacks Consensus Estimate for the first quarter has increased by a cent to 38 cents per share. The stock sports a Zacks Rank #2.
Univar Inc.UNVR , based in Downers Grove, IL, is a distributor of chemicals and innovative services. The Zacks Consensus Estimate for the first quarter has increased by 3 cents to 22 cents per share. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Independent refiner and petroleum products marketer Alon USA Energy Inc.ALJ operates primarily in the Southwestern and South Central regions of the U.S. The company's earnings are projected to grow 10% over the next three to five years, higher than the industry average of 9.3%. The company carries a Zacks Rank #3.
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.
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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