Despite signs of cooling inflation, we are by no means out of the woods. In fact, with inflation still well above the Fed’s 2% target, more interest rate hikes in the near term cannot be ruled out.
Even if the central bank keeps interest rates unaltered in its upcoming meeting on Sep 19-20, rate hikes are likely in the coming months, as indicated by Fed Chair Jerome Powell. Uncertainty regarding the Fed’s future course of action on interest rates kept investors on edge and contributed to August being the worst month in the current year for Wall Street. The sharp rise in oil price after Saudi Arabia and Russia extended voluntary supply cuts has also contributed to the downtrend observed in U.S. equity markets lately.
However, this uncertain scenario does not mean that investors should shy away from stocks. In fact, broker-favorite stocks like CVR Energy CVI, Delek US Holdings DK,Bread Financial BFH, Dish Network DISH and Avnet AVT are worth keeping on one’s radar for healthy returns despite this turbulence.
Why Broker-Advice is the Need of the Hour
In the absence of proper guidance, individual investors may end up selecting the wrong stocks for their portfolio. This might waste their hard-earned money that they invested in the stock markets.
As brokers indulge in extensive research on stocks under their coverage, they have access to much detailed information on a company. They attend company conference calls/presentations and scrutinize every piece of document available in the public domain. After thorough research work, brokers recommend (buy, sell or hold) a stock. Naturally, such well-researched information, should be adhered to by individual investors as they aim to design a portfolio consisting of a winning basket of stocks.
Winning Strategy
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 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.
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 screening:
CVR Energy is an independent refiner and marketer of high-value transportation fuels. The company places significant emphasis on the development of renewable biofuels, actively participating in the energy transition to reduce carbon emissions. Its efforts to reward its shareholders underline its strong financial position.
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 32.8% over 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 12.8% upward. Bread Financial currently carries a Zacks Rank #3.
Dish Network is being aided by tailwinds like an extensive portfolio of 5G spectrum and a focus on acquiring and retaining subscribers that are profitable over the long term. In second-quarter 2023, Pay-TV’s average monthly revenue per subscriber increased 3.4% year over year to $104.71 driven by DISH TV and SLING TV programming package price increases and higher advertising revenues.
Over the past 60 days, the Zacks Consensus Estimate for DISH’s current-quarter earnings has been revised 8.33% upward. Dish Network 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 the 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%.
Avnet, Inc. (AVT): Free Stock Analysis Report
DISH Network Corporation (DISH): Free Stock Analysis Report
CVR Energy Inc. (CVI): Free Stock Analysis Report
Delek US Holdings, Inc. (DK): Free Stock Analysis Report
Bread Financial Holdings, Inc. (BFH): Free Stock Analysis Report
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This article originally appeared on Zacks
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