The U.S. equity markets continue to be plagued by severe volatility. Despite a strong performance by major indices in March, the fact remains that we are by no means out of the woods especially with respect to woes related to inflation. The recent production cut by the OPEC+ oil cartel, which includes OPEC members plus Russia, has led to a surge in oil prices. This may lead to inflationary pressure aggravating and further economic uncertainty and market volatility.
Given this uncertain scenario, it is anything but easy for individual investors to design a winning portfolio of stocks. But no one wants to see their hard-earned money go down the drain. Moreover, with multiple stocks flooding the market from every possible corner, at any point of time, it is next to impossible to design one’s portfolio with appropriate stocks in the absence of guidance from experts who are equipped with suitable market-related knowhow. The experts in the field of investing are the brokers.
We believe that investors should keep track of broker-favorite stocks like CVR Energy CVI, American Airlines AAL, Bloomin’ Brands BLMN, Abercrombie & Fitch Co. ANF and Cleveland-Cliff CLF for attractive returns.
Here’s Why Adhering to Broker Advice is Advisable
Brokers scrutinize publicly available financial documents and also attend company conference calls and other presentations. Since brokers recommend (buy, sell or hold) a stock after thoroughly analyzing the nitty-gritty associated with the company, it is prudent for investors to be guided by their direction of estimate revisions while deciding their course of action on a particular stock.
The estimate revisions serve as an important pointer regarding the price of a stock. 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, including a favorable earnings performance, bullish guidance, product launch or an optimistic macro scenario.
To take care of the earnings performance, we designed a screen based on improving analyst recommendations and upward estimate revisions 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 taken into consideration. The price/sales ratio takes care of the company’s top line, making the strategy foolproof.
# (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:
CVR Energy is an independent refiner and marketer of high-value transportation fuels. CVI is also a producer of ammonia and urea ammonia nitrate fertilizers. CVI's petroleum business includes a full-coking sour crude refinery in Coffeyville, KS. Its efforts to reward its shareholders underline its strong financial position. The robust Nitrogen Fertilizer unit is supporting growth.
CVR Energy, currently sporting a Zacks Rank #1 (Strong Buy), surpassed the Zacks Consensus Estimate in each of the past four quarters by an average of 40.85%. The Zacks Consensus Estimate for current-year earnings has improved 36.8% over the past 60 days.You can see the complete list of today’s Zacks #1 Rank stocks here.
American Airlines is based in Fort Worth, TX. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL. However, high fuel costs are hurting the bottom line.
Over the past 60 days, the Zacks Consensus Estimate for AAL’s 2023 earnings has been revised 19.6% upward. American Airlines currently carries a Zacks Rank #2 (Buy).
Bloomin’ Brands is a casual dining restaurant company with a portfolio of differentiated restaurant concepts such as Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's Prime Steakhouse and Wine Bar and Roy's. The company currently sports a Zacks Rank #1.
Bloomin’ Brands has a trailing four-quarter earnings surprise of 7.51%, on average. The Zacks Consensus Estimate for BLMN’s 2023 earnings has moved 9.7% north to $2.93 per share over the past 60 days.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids through a network of approximately 850 stores across North America, Europe, Asia and the Middle East.
Abercrombie, currently carrying a Zacks Rank #3, is working toward rationalizing its store base by reducing its dependence on underperforming tourist-driven locations. The Zacks Consensus Estimate for current-year earnings has skyrocketed more than 400% from the year-ago actual bottom-line figure.
Cleveland-Cliffs is a leading iron ore producer in the United States. It supplies differentiated iron ore pellets under long-term contracts to major blast furnace steel producers in North America. The Mining and Pelletizing operation gains from low-cost, high-quality iron ore pellet production with substantial logistics and transportation advantages to serve the Great Lakes steel market. The company should gain from its merger with AK Steel Holding Corporation.
CLF surpassed the Zacks Consensus Estimate in two of the past four quarters (missing the mark in the other two). The Zacks Consensus Estimate for CLF’s 2023 earnings has moved 9.3% north to $1.99 per share over the past seven days. Cleveland-Cliffs currently carries a Zacks Rank #3.
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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