Recent Broker Rating Upgrades Add Luster To These 5 Stocks
Zacks Investment Research | Dec 16, 2018 09:17PM ET
“Strike while the iron is hot” is appropriate in all walks of life and the investing world is no exception. Investors, after all, are putting their hard-earned money into a stock and expectations of handsome returns are quite obvious.
However, the uncertainties associated with the investment world and the plethora of stocks flooding the market make the task a daunting one.
Moreover, with time at a premium these days, it is next to impossible for investors to keep track of market movements to identify opportune moment(s) for buying or offloading a particular stock to maximize returns. Therefore, guidance from proper channels is a must.
Time for Some Broker Advice
The experts in the investing world are brokers. Generally, three types of brokers (sell-side, buy-side and independent) are present in the investment world, with sell-side analysts being the most common. They are employed by various brokerage firms to provide unbiased opinion to investors on the stocks under their coverage after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors.
All types of brokers indulge in conducting research of the stocks under their coverage. They have access to much detailed information on a company. Toward this end, they attend company conference calls/presentations and scrutinize every detail available publicly before advising investors. Naturally, broker advice acts as an invaluable guide for investors in their bid to garner the maximum from their portfolios.
Direction of Earnings Estimates: An Invaluable Guide
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 outperformance 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.
Making the Most of Broker Guidance
The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendation 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 has been included. The price/sales ratio takes care of the company’s top line, making the strategy effective.
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.
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.
Price greater than 5: A stock trading below $5 will not likely be of significant interest to most investors.
Average Daily Volume greater than 100,000 shares over the last 20 trading days: Volume has to be significant to ensure that these are easily traded.
Market value ($ mil) = Top #3000: This gives us stocks that are the top 3000 in terms of market capitalization.
Here are five of the 10 stocks that passed the screen:
American Airlines Group (NASDAQ:AAL) : The carrier operates more than 6,700 daily flights to over 330 destinations in more than 50 nations across the globe from its hubs. American Airlines is headquartered in Fort Worth, TX and carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-quarter earnings has increased 40.3% in the past 60 days. You can see Zacks Investment Research
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