The second-quarter earnings season, which is in its last leg, saw a large proportion of companies not only report better-than-expected earnings per share but also register year-over-year bottom-line growth. Although results were aided by easy year-over-year comparisons as second-quarter 2020 was hardest hit by the COVID crisis, the improvement in the overall scenario with economic activities gathering steam is certainly heartwarming.
Against this favorable background, investors would like to add outperformers to their portfolios as they strive to design a portfolio of stocks that will fetch them handsome returns. No one would after all like to see their hard-earned money invested in the stock market going down the drain, particularly in such uncertain times.
However, the task is easier said than done. This is because the investing world is fraught with uncertainties and stock prices are sensitive to recent developments. Additionally, the same group of stocks may not work under all circumstances.
For example, the airline stocks may benefit from declining oil prices but may fall out of favor in the event of oil prices moving up. One of the well-accepted strategies to brave the market turbulence is to maintain a well-diversified (i.e. include stocks from different industries) portfolio.
What is the Way Forward?
Given this scenario, it is in the best interest of investors to seek guidance from “experts in the field”. The concerned experts are brokers. The opinion of brokers acts as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock. Broker ratings are backed by sound logic. They have deeper insight into the happenings of a particular company as they directly communicate with management.
They undertake extensive research on the company’s publicly available financial statements apart from attending conference calls. In a bid to deepen their understanding of a particular stock, they sometimes converse with customers to find out their likes/dislikes about the products and services offered by the company.
Making the Most of Broker Opinions
The above write-up clearly suggests that by following broker actions, one can arrive at a winning basket of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on improving analyst recommendations and upward revisions in 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 is also included. 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 four 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 four 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 the 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 takes out the ADR and Canadian stocks.
Here are five of the 10 stocks that made it through the screen:
Cross Country Healthcare CCRN: The company, currently carrying a Zacks Rank #2 (Buy), is a leading provider of healthcare staffing and workforce management. It reported better-than-expected earnings per share in each of the last four quarters, the average being 181.4%. It is being aided by the stellar performance of its primary segment Nurse and Allied Staffing, driven by a robust demand scenario.
The Greenbrier Companies GBX: The company, currently sporting a Zacks Rank #1 (Strong Buy), is a leading supplier of equipment and services to global freight transportation markets. The stock has seen the Zacks Consensus Estimate for current-year earnings skyrocket in excess of 800% over the past 60 days. The company is being aided by the recovery in the scenario pertaining to railcar manufacturing and leasing. You can see the complete list of today’s Zacks #1 Rank stocks here.
AutoNation AN is the largest automotive retailer in the United States. The stock, currently sporting a Zacks Rank of 1, has seen the Zacks Consensus Estimate for current-year earnings being revised 33.2% upward over the past 60 days. The company is benefiting from factors like its diversified product mix and cost-containment efforts.
Peabody Energy BTU: St Louis, MO-based Peabody Energy engages in the coal-mining business and has both thermal and metallurgical operations. The revival in the domestic and international coal markets bodes well for this currently Zacks #2 Ranked stock that has outperformed on earnings in three of the last four quarters (lagging the consensus mark in the other quarter).
Bloomin Brands BLMN is a casual dining restaurant company with a portfolio of differentiated restaurant concepts. The company currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for current-year earnings has moved 31.3% north over the past 60 days. The company is being aided by the fact that the restaurant industry seems to be gradually getting back on its feet with a rebound in sales as more and more people are dining out owing to large-scale vaccination and improving economic conditions.
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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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Peabody Energy Corporation (BTU) : Free Stock Analysis Report
AutoNation, Inc. (AN) : Free Stock Analysis Report
Cross Country Healthcare, Inc. (CCRN) : Free Stock Analysis Report
Bloomin Brands, Inc. (BLMN) : Free Stock Analysis Report
Greenbrier Companies, Inc. The (GBX) : Free Stock Analysis Report
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