5 Stocks That Brokers Currently Love

Lack of proper guidance may lead an investor to make wrong choices while designing their portfolio. The addition of random stocks to one’s portfolio can adversely impact returns, thereby ruining the very objective of investing.

Why Broker Advice is a Must

The opinion of brokers is highly valued by investors as they have a clear insight into the nitty gritty of the investment world. Brokers thoroughly scrutinize the publicly available financial documents apart from attending company conference calls and other presentations. 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 revise their earnings estimates after carefully examining the pros and cons of an event for the concerned stock. Estimates can move north for a number of reasons — favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario. On the contrary, lackluster earnings often result in stock price depreciation. Investors tend to be guided by the direction of estimate revisions and stock price while formulating their investment strategy.

The above writeup clearly demonstrates the utility of broker guidance for investors while deciding their course of action (buy, sell or hold) on a particular stock. 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. Therefore, 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 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 takes out the ADR and Canadian stocks.

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

Diebold Nixdorf (NYSE:DBD) is a provider of connected commerce solutions to financial institutions. This Zacks Rank #1 (Strong Buy) Ohio-based company provides automatic teller machines, financial and point-of-sale services. The Zacks Consensus Estimate for the current quarter has increased 44.4% over the past 30 days. You can see Original post

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Written By: Zacks Investment Research