5 Broker-Friendly Stocks Stealing The Spotlight

Investors, while designing their portfolio of stocks, solely aim at raking in handsome returns. However, the task is easier said than done because selecting the right stocks out of a deluge at any point of time is no mean feat.

Moreover, with time at a premium these days, it is next to impossible for investors to keep track of market movements to identify the opportune moment(s) for buying or offloading a particular stock to maximize returns. Therefore, guidance from proper channels is a must.

Broker Advice – The Way Forward

To combat the above problems, it is in the best interest of investors to be guided by he “experts” in the field of investing. These “experts” are brokers who are equipped with detailed knowledge about the space. Individual investors, generally, do not have access to such detailed and well-researched information.

Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a lot more information on a company and its prospects than individual investors. To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations. Broker opinion should thus act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Earnings Estimate Revisions

Since brokers meticulously follow the stocks in their coverage, 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 beat by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings often lead to stock price depreciation. Investors tend to be guided by the direction of estimate revisions and stock price while formulating their investment strategy. To take care of the earnings performance, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the last four weeks.

What About Revenues?

While we have talked about the bottom line in detail, the top line (revenue portion) cannot be ignored. Actually, according to many market watchers a revenue beat is more creditable for a company than a mere earnings outperformance. This especially holds true in an environment of revenue weakness due to macroeconomic headwinds like a strong dollar or lackluster demand for travel (which will hurt travel-focused companies). To address top-line concerns, we have included in our screen the price/sales ratio that serves as a strong complementary valuation metric.

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 criterion 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 takes out the ADR and Canadian stocks.

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

Abercrombie & Fitch Co. (NYSE:ANF) is a leading, global specialty retailer of apparel and accessories, which markets its products under three renowned brands - the iconic Abercrombie & Fitch brand, the Hollister brand and abercrombie kids. The company, based in New Albany, OH, has stores across North America, Europe, Asia and the Middle East, as well as an online presence. This Zacks Rank #3 (Hold) stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 14.1% upward over the last 30 days.

Cloud Peak Energy Inc. (NYSE:CLD) operates as a producer of low sulfur, high quality, sub-bituminous coal in the United States. Its average EPS surprise over the last four quarters is more than 100%. Cloud Peak Energy sports a Zacks Rank #1 (Strong Buy). You can see Original post

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Written By: Zacks Investment Research