The month of August has not been good for U.S. equity markets as volatility returned after smooth sailing in the first seven months of 2023. The month has seen Fitch Ratings downgrade the U.S long-term foreign currency issuer default rating. Moreover, in the current month, Moody’s Investors Service cut the ratings of 10 small-to-mid-sized institutions and placed six bigger lenders under review for potential downgrades. Adding to the chaotic scenario, most market participants believe that more interest rate hikes are around the corner as the inflation rate remains well above the central bank’s target level.
However, this uncertain scenario does not mean that investors should turn their backs on stocks. In fact, broker-friendly stocks like CVR Energy (CVI – Free Report) , Fluor Corporation (FLR – Free Report) , Delek US Holdings (DK – Free Report) , Bread Financial (BFH – Free Report) and Avnet (AVT – Free Report) are worth keeping on one’s radar for healthy returns despite this turbulence.
Broker Advice is Crucial
As brokers indulge in extensive research on stocks under their coverage, they have access to detailed information on a company. Also, they attend company conference calls/presentations and scrutinize every piece of document available in the public domain before instructing investors.
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. Naturally, their estimate revisions serve as an important pointer regarding the price of a stock.
Given this extensive know-how, brokers are deemed to be experts in the field of investing. They are believed to be equipped with thorough knowledge and a clear insight into the complexities associated with the investment world. Paying heed to such well-researched information is, therefore, desirable for investors to avoid an unfortunate scenario where one’s hard-earned money invested in stock markets goes down the drain.
Winning Strategy
The above write-up, therefore, 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 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 a 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).
We have also added the following screening parameters to ensure that the strategy is a winning one:
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(as a stock trading below $5 will not likely create significant interest for most of the investors).
Average Daily Volume greater than 100,000 shares over the last 20 trading days(Volume has to be significant to ensure that these are easily traded).
Market value ($ mil) = Top #3000 (This gives us stocks that are the top 3000 in terms of market capitalization).
Com/ADR/Canadian= Com (This eliminates 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 supports growth.
CVR Energy, currently sporting a Zacks Rank #1 (Strong Buy), has outshined the Zacks Consensus Estimate in each of the past four quarters, by an average of 28.75%. The Zacks Consensus Estimate for current-year earnings has improved 50% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fluor provides engineering, procurement, construction and maintenance services through a number of subsidiaries. Fluor’s Energy Solutions segment is expected to benefit from the energy transition space. Increased execution activities on refinery and LNG projects in North America, along with contributions from NuScale, bode well for the company’s Energy Solutions segment.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for FLR’s 2023 earnings has increased 13.8% to $1.98 per share in the past 60 days.
Brentwood, TN-based Delek US Holdings is an independent refiner, transporter and marketer of petroleum products. DK’s extensive downstream operations within the Permian Basin grant it a fairly significant competitive edge over its peers in the long term.
Delek US Holdings currently carries a Zacks Rank #3 (Hold). DK surpassed the Zacks Consensus Estimate for earnings in three of the past four quarters (missing the mark in the other one).
Based in Columbus, OH, Bread Financial continues to benefit from data-driven marketing strategies. Solid receivables growth in Card Services should drive its top line. Acquisitions and divestitures will aid the company in growing inorganically and expanding its international footprint.
Over the past 60 days, the Zacks Consensus Estimate for BFH’s 2023 earnings has been revised 14.6% upward. Bread Financial currently carries a Zacks Rank #3.
Avnet is benefiting from robust demand for its products across Asia, Europe, the Middle East and Africa regions. Improvement in the Americas also served as a tailwind. Its continued focus on boosting IoT capabilities is helping it expand in newer markets and win customers. Moreover, cost-saving efforts are aiding profitability.
Avnet, currently carrying a Zacks Rank of 3, has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 13.2%.
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 backtest 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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