5 Stocks Favored by Brokers Amid the Current Uncertainty

5 Stocks Favored by Brokers Amid the Current Uncertainty

Maharathi Basu
6 min read
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The hotter-than-expected inflation reading in January clearly shows that we are not out of the woods as far as inflation in the United States is concerned. The unfavorable inflation report casts doubt on the possibility of the Federal Reserve cutting interest rates even in May, let alone in March.

By maintaining high interest rates, the Fed aims to slow down demand by making borrowing money more expensive. The hotter-than-expected inflation reading dented consumers’ confidence, leading to a widespread selloff with a decline in major indices. With rate cuts not a possibility, at least in the near term, market turbulence is unlikely to go away any time soon.

However, this uncertain scenario does not mean that investors should turn their backs on stocks. In fact, broker-loved stocks like Deutsche Bank AG DB, Cross Country Healthcare CCRN,Bread Financial BFH, American Axle AXL and Cardinal Health CAH are worth holding on to for healthy returns despite the turbulence.

Broker Advice – The Way Forward

In view of the prevalent uncertainty, the task of designing a portfolio of stocks for lucrative returns is by no means an easy task.  Furthermore, with a plethora of stocks present in the market at any point in time, spotting potential outperformers is tough for individual investors. In the absence of proper guidance, identifying a winning stock is akin to searching for “a needle in a haystack.”

Given this backdrop, it is in the best interest of investors to seek guidance from “experts in the field." The concerned experts are brokers. Brokers have a deeper insight into what’s happening in a particular company, along with a better understanding of the overall sector and the industry.

To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations.

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 — a favorable earnings performance, a bullish guidance, a 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.

Making the Most of Broker Opinions

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 to 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 has been included. The price/sales ratio takes care of the company’s top line, making the strategy foolproof.

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