Agreed that the Q2 earnings season is in its nascent stage with only a handful of companies having reported their financial numbers thus far but the start to the earnings season has been quite impressive. A high proportion of companies have reported better-than-expected earnings per share so far in Q2. An earnings beat generally leads to stock price appreciation.

The reassuring earnings picture apart, signs of easing inflation and the consequent improvement in the purchasing power of consumers are further tailwinds. Investors would like to take advantage of this rosy scenario and design their portfolios with appropriate stocks for high returns.

However, the task of designing one’s portfolio with potential winners is anything but an easy one. The task becomes even more difficult when one tries to select a winning portfolio without proper guidance.

With a plethora of stocks flooding the market at any point in time, it is highly likely that an investor ends up making a wrong choice while designing one’s portfolio. Moreover, time constraints make the task of making proper choices harder.

The choice of improper stocks can adversely impact returns, thereby ruining the very objective of investing one’s hard-earned money in the highly unpredictable stock market. In a bid to avoid such a scenario, investors usually rely on guidance from proper sources.

Broker Advice – The Way Forward

In the field of investing, brokers are deemed to be experts with thorough knowledge. Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a lot more information on a company and its prospects than individual investors.

To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations.  Broker opinion should thus act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Earnings Estimate Revisions – A Winning Pointer

Since brokers indulge in meticulous research, the question of their actions being arbitrary does not arise. The direction of the estimate revisions serves as an important pointer regarding the price of a stock. In fact, a rating upgrade normally leads to stock price appreciation and vice versa.

Given the expertise of brokers in investment matters, it is natural for investors to believe that there is a solid reason/logic behind their improving the recommendation on a particular stock. Estimates can move north for a number of reasons — favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario.

To take care of the earnings performance, we have designed a screen based on improving analyst recommendations and upward estimate revisions over the last four weeks.

Revenues Performance Not to be Ignored

According to many market watchers, a revenue beat is more creditable for a company than a mere earnings outperformance. Therefore, one must take top-line performance into consideration as well while formulating a winning strategy. 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 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 eliminates the ADR and Canadian stocks.

Here are five of the 10 stocks that passed the screen test:

American Airlines AAL is based in Fort Worth, TX. The gradual increase in air travel demand (particularly for leisure) is aiding AAL. However, high operating costs are hurting the bottom line.

Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2023 earnings being revised 14.4% upward. AAL currently carries a Zacks Rank #3 (Hold).

The Greenbrier Companies GBX is a leading supplier of transportation equipment and services to the railroad and related industries. GBX’s manufacturing segment produces double-stack intermodal railcars, conventional railcars and marine vessels, and performs repair and refurbishment activities for both intermodal and conventional railcars.

GBX is also engaged in complementary leasing and services activities. Greenbrier Europe is an end-to-end freight railcar manufacturing, engineering and repair business with operations in Poland & Romania and serves customers across Europe and the Middle East. We are impressed by the company’s efforts to pay dividends even in the current uncertain scenario. GBX currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brentwood, TN-based Delek US Holdings DK 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. DK surpassed the Zacks Consensus Estimate for earnings in three of the past four quarters (missing the mark in the other one).

CVR Energy CVI is an independent refiner and marketer of high-value transportation fuels. CVI is also a producer of ammonia and urea ammonia nitrate fertilizers. Its petroleum business includes a full-coking sour crude refinery in Coffeyville, KS. The company’s efforts to reward its shareholders underline its strong financial position. The robust Nitrogen Fertilizer unit supports growth.

CVR Energy, currently carrying a Zacks Rank #3, surpassed the Zacks Consensus Estimate in each of the past four quarters by an average of 23.75%. The Zacks Consensus Estimate for its current-year earnings has improved 5.82% over the past 60 days.

Brighthouse Financial BHF is one of the largest providers of annuity and life insurance products in the United States. A compelling suite of life and annuity products, strong market presence, exit from the transition service agreement and growing individual insurance and investment income should drive growth for this Zacks Rank #3 insurer.

The Zacks Consensus Estimate for current-year earnings has increased 28.91% from the year-ago actual earnings figure. The company surpassed the Zacks Consensus Estimate for earnings in two of the past four quarters (missing the mark in the other two).

CVR Energy Inc. (CVI): Free Stock Analysis Report

Delek US Holdings, Inc. (DK): Free Stock Analysis Report

American Airlines Group Inc. (AAL): Free Stock Analysis Report

Greenbrier Companies, Inc. (The) (GBX): Free Stock Analysis Report

Brighthouse Financial, Inc. (BHF): Free Stock Analysis Report

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Zacks Investment Research

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