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Recent Analyst Upgrades Make These 5 Stocks Attractive

Zacks

Investors strive to design a portfolio of stocks that will fetch them handsome returns. However, the task is easier said than done because selecting the right stocks at any point of time is no mean feat. Given the time constraint that we all face, it is quite impossible for individual investors to have thorough knowledge about all stocks.

In the absence of proper guidance, identifying a winning stock is akin to searching for ‘a needle in a haystack’. The proper guidance, in this respect, comes from brokers, who are deemed to experts, equipped with vast knowledge and know how as far the field of investing is concerned.

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.

Earnings Estimate Revisions – A Proper Guide


Broker ratings are backed by sound logic and are by no means arbitrary. Brokers not only scrutinize the publicly available financial documents but also attend company conference calls and other presentations. Naturally, it is in the best interest of investors to pay heed to such well-researched information as they aim to generate maximum returns from their portfolio.

Since brokers closely follow the stocks in their coverage, they revise earnings estimates only after carefully examining the pros and cons of an event for the concerned company. In fact, a rating upgrade or downgrade by brokers has the potential to influence the price of the stock.

Naturally, when investors see brokers revising their estimates or recommendation on a stock, they often assume that there is something in the stock that has attracted analyst attention.In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade.

Estimates can move north for a number of reasons – favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario.

Don’t Leave out the Top Line

While we have already talked about the bottom line, 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 holds true especially 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, which 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 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:

Ridgefield, CT-based The Chefs' Warehouse, Inc. CHEF is a distributor of specialty food products in the United States and Canada. The Zacks Consensus Estimate for the current year has increased by a penny to 37 cents per share over the last 60 days. The company carries a Zacks Rank #3 (Hold).

Based in Columbus, OH and founded in 1967, Big Lots, Inc. BIG is a broad-line closeout retailer in the U.S. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, and Electronics & Accessories. This Zacks Rank #3 company has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 82.98%.

The Woodlands, TX-based Conns Inc. CONN is a specialty retailer, which currently operates retail locations in Texas and Louisiana. This Zacks Rank #1 (Strong Buy) company has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 80.87%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly's, Inc. TLYS, based in Irvine, CA, is a retailer of casual apparel, footwear, and accessories. The Zacks Consensus Estimate for the current quarter has increased 66.7% to 6 cents per share over the last 30 days for this Zacks Rank #3 stock.

Based in Illinois, Navistar International Corporation NAV manufactures and markets International brand commercial and military trucks, MaxxForce branded diesel engines and IC Bus ("IC") branded school and commercial buses. The Zacks Consensus Estimate for the current quarter has increased in excess of 100% to 28 cents per share over the last 60 days for this Zacks Rank #3 stock.

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.

Click here to sign up for a free trial to the Research Wizard today.

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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