With the second-quarter 2021 earnings season in the offing, investors will look to include a winning basket of stocks in their respective portfolios, which have the potential to surpass earnings expectations in the to-be-reported quarter. This is because an earnings beat more often than not leads to stock price appreciation.
Investors after all are parking out their hard-earned money in the stock market. Naturally, they will want to generate handsome returns for their portfolio. However, the task of designing one’s portfolio with potential outperformers is anything but easy. In fact, equity market tricks are not easy to master with a plethora of stocks flooding the space at any point of time. The task becomes even more difficult when one tries to select a promising portfolio without proper guidance.
A handful of inappropriate stocks can adversely impact his/her returns, thereby ruining the very objective of investing the hard-earned money in the highly unpredictable stock market.
Broker Advice: The Way Forward?
To avoid such a predicament, investors, more often than not rely on the guidance provided by brokers who are deemed experts in the field equipped with thorough knowledge and a clear insight into the nitty gritties of the investment world.
They have at their disposal a lot more information about a company and its prospects than individual investors. Brokers directly communicate with the top management. They also thoroughly study the publicly available documents and attend conference calls. Since brokers meticulously follow the stocks under their coverage, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. Naturally, their estimate revisions serve as an important pointer regarding the price of a stock.
Winning Strategy
The above write-up clearly suggests that by following broker actions, one can arrive at an attractive portfolio of stocks. Keeping this in mind, we designed a screen to shortlist stocks based on improving analyst recommendations and upward revisions of 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 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:
Caleres (NYSE:CAL) CAL engages in the retail and wholesale of footwear. This Saint Louis, MO-based company’s earnings for fiscal 2022 are projected to soar 242.9% from the fiscal 2021 actuals. The stock, currently sporting a Zacks Rank #1 (Strong Buy), has witnessed 12.8% upward revision in current-quarter earnings over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Boise Cascade (NYSE:BCC) BCC is one of the largest producers of engineered wood products and plywood in North America and a leading U.S. wholesale distributor of building products. The stock, currently flaunting a Zacks Rank of 1, has an impressive estimated EPS (three to five years) growth rate of 10.2%.
Best Buy Co (NYSE:BBY). BBY: Headquartered in Richfield, MN, Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, heath, security, appliances and related services. The company operates in the United States and Canada. This currently Zacks #2 Ranked company’s earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average being 32.1%.
Chico's FAS (NYSE:CHS) (CHS) operates as an omnichannel specialty retailer of women's private branded casual-to-dressy clothing, intimates and complementary accessories. The company currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings has moved 46.9% north over the past 60 days.
Northbrook, IL-based The Allstate Corporation (NYSE:ALL) ALL provides property and casualty, and other insurance products in the United States and Canada. This presently #2 Ranked insurer’s earnings outshined the Zacks Consensus Estimate in all the trailing four quarters, the average being 63.2%.
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.
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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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Best Buy Co., Inc. (BBY): Free Stock Analysis Report
The Allstate Corporation (ALL): Free Stock Analysis Report
Chicos FAS, Inc. (CHS): Free Stock Analysis Report
Boise Cascade, L.L.C. (BCC): Free Stock Analysis Report
Caleres, Inc. (CAL): Free Stock Analysis Report
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