5 Stocks to Keep an Eye on Following Upgrade by Brokers
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5 Stocks to Keep an Eye on Following Upgrade by Brokers

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The hotter-than-expected inflation data, with the consumer price index (CPI) rising more than anticipated in January, has highlighted the fact that we are far from being out of the woods and that inflation remains a formidable foe. CPI was up 0.5% in the first month of the year, following a 0.1% rise in December and compared to expectations of a 0.4% rise.

The Fed, which raised interest rates by 25 basis points a few days ago, has vowed to continue with its interest rate hiking strategy to curb high inflationary pressure.  The latest report indicates that further rate hikes are necessary in this respect. Higher interest rates shoot up the cost of borrowing, escalating the chances of an economic slowdown.

Inflationary woes have primarily resulted in extreme market volatility. Despite the current turmoil and economic uncertainty, shunning equities is an absolute no-no for investors. So what’s the way forward to reap handsome returns from one’s portfolio even during the current uncertainty?

One way to proceed in this scenario is by adhering to broker advice. By following this method, broker-friendly stocks like, Archer Daniels ADM, Delek US Holdings DK, Beazer Homes USA BZH, AmerisourceBergen ABC and Avnet AVT should be included in an investor’s watchlist for healthy returns.

Why is Broker Advice the Need of the Hour?

As brokers indulge in extensive research on stocks under their coverage, they have access to much-detailed information on a company. To this end, 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, equipped with thorough knowledge and a clear insight into the details pertaining to the investment world. Paying heed to such well-researched information is, therefore, logical for investors to avoid the unfortunate scenario of one’s hard-earned money invested in stock markets going down the drain.

Making the Most of Broker Knowhow

The above write-up clearly suggests that by following broker actions, one can arrive at a promising basket of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendations and upward earnings 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 considered in designing a winning portfolio of stocks. The price/sales ratio takes care of the company’s top line, making the strategy extremely effective.

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 have added the following screening parameters:

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: 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 made it through the screen:

Archer Daniels: This Chicago, IL-based leading agricultural products player’s leadership in key global trends like flexitarian diets, nutrition and sustainable materials is a contributor to its momentum. ADM’s focus on making investments in assets and technological capabilities to serve customers efficiently is likely to be a key driver.

Archer Daniels’ Readiness program, positive cash flow and solid performance at the Nutrition unit are aiding results. ADM has been progressing well on its three strategic pillars, which are optimize, drive and growth, for a while. The Zacks Consensus Estimate for 2023 earnings has been revised 6.7% upward over the past 60 days. ADM 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 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). The average beat is in excess of 100%.

Beazer Homes: This Atlanta, GA-based homebuilder designs, builds and sells single-family homes. BZH, currently carrying a Zacks Rank #3, designs homes to appeal primarily to entry-level and first move-up homebuyers. BZH’s subsidiary, Beazer Mortgage, originates the mortgages for the company's homebuyers.

The company’s Balanced Growth strategy, higher pricing, lower sales incentives and solid backlog level are expected to improve profitability. BZH has seen an upward estimate revision of 2.9% for current-year earnings over the past 60 days. This depicts analysts’ optimism about the company’s prospects.

AmerisourceBergen is one of the world’s largest pharmaceutical services companies. It focuses on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, enhanced economic conditions and population demographics are likely to favor the company in the quarters to come.

ABC has seen an upward estimate revision of 1.2% for current-year earnings over the past 60 days. ABC surpassed the Zacks Consensus Estimate for earnings in each of the past four quarters by an average of 3.5%. Currently, the company carries a Zacks Rank of 2.

Avnet is benefiting from robust demand for its products across Asia, Europe, the Middle East and Africa (EMEA) 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. It surpassed the Zacks Consensus Estimate in each of the last four quarters, the average being 15.5%.

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.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Avnet, Inc. (AVT) : Free Stock Analysis Report

Archer Daniels Midland Company (ADM) : Free Stock Analysis Report

AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report

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

Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report

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