Fears of a recession in the second half of 2022 have already rattled the U.S. markets. The pain of the pandemic is hitting investors hard with regular economic activities resuming normalcy and the fiscal and monetary sops drying up. Inflation is sky-high. U.S. consumer prices have escalated at the fastest pace in May 2022 since 1981 with the U.S. consumer price index rising 8.6% in the month.
To combat the four-decade high inflation, the Federal Reserve recently announced a 75-bps raise in interest rates (to the 1.50-1.75% range), the biggest interest-rate increase since 1994. Similar hikes in the remainder of the year are not ruled out.
Headwinds like rising energy and inflated food prices in addition to supply-chain disruptions are inducing extreme volatility as far as the stock market is concerned. The S&P 500, the teach-heavy Nasdaq and the Dow Jones Industrial Average have all declined in double-digits on a year-to-date basis.
However, this free fall of the U.S. stock markets does not mean that investors should dodge stocks. In fact, broker-friendly stocks like American Airlines AAL, PBF Energy PBF, McKesson Corporation MCK, Commercial Metals Company CMC and American Axle & Manufacturing Holdings AXL should be on investors’ watchlist.
Why Following Broker Advice Works Wonders?
Brokers have an in-depth understanding of stocks, great knowledge of the industry and a strong grasp over the broader economy. They scrutinize a company’s fundamentals and weight the same against the prevalent economic scenario to find out how attractive or creditworthy a stock is as an investment bet.
After thorough research work, brokers recommend (buy, sell or hold) a stock. Such well-researched information is not available to individual investors. So in the absence of proper guidance, they may select the wrong stocks for their portfolio. This might waste their hard-earned money, which they invested in the stock markets. To avoid such an unfortunate scenario, it is advisable for investors to be guided by brokers’ advice while deciding their course of action on a particular stock.
Formulating a Winning Portfolio
We designed a screener to zero in on stocks based on improving analyst recommendations and upward earnings estimate revisions over the last four weeks. However, considering only these factors does not make our strategy foolproof as the top line is not considered.
According to many market watchers, a top-line outperformance is more creditable for a company than a mere earnings outperformance. To address top-line concerns, we included the price/sales ratio in our screener, which serves as a strong complementary valuation metric.
# (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 takes out the ADR and Canadian stocks).
Here are five of the 10 stocks that made it through the screen:
American Airlines is based in Fort Worth, TX. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL. However, high fuel costs are hurting the bottom line.
Over the past 60 days, the AAL stock has seen the Zacks Consensus Estimate for 2022 earnings being revised 10.1% upward. AAL currently carries a Zacks Rank #3 (Hold).
PBF Energy, based in Parsippany, NJ, is a leading refiner of crude. Through five oil refineries and associated infrastructure in the United States, PBF provides end products that comprise heating oil, transportation fuels, lubricants and many related products.
Over the past 60 days, the PBF stock has seen the Zacks Consensus Estimate for 2022 earnings being revised 103.3% upward.The stock sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
McKesson Corporation is a healthcare services and information technology company, based in San Francisco, CA. McKesson is a major player in the pharmaceutical and medical supplies distribution market. The Distribution Solutions segment of MCK caters to a wide range of customers and businesses. It stands to benefit from increased generic utilization, inflation in generics caused by several patent expirations in the next few years, and an aging population.
McKesson carries a Zacks Rank #3, currently. Over the past 60 days, the MCK stock has seen the Zacks Consensus Estimate for current-year earnings being revised 2.6% upward.
Commercial Metals presently has a Zacks Rank of 1 and an expected earnings growth rate of 152.9% for the current fiscal year. The consensus estimate for CMC's current-quarter earnings has been revised 54.9% upward over the past 60 days.
Commercial Metals’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once. CMC has a trailing four-quarter earnings surprise of roughly 16%, on average. Shares of CMC have gained 19% in a year’s time.
American Axle is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. AXL aims to become carbon neutral by 2040 and intends to strengthen the electric propulsion product portfolio, emphasizing more on e-Beam axles and next-generation 3-in-1 electric drive units. AXL is making considerable progress toward diversifying its business, products and customer base as well as creating a sustainable supply-chain system.
The Zacks Consensus Estimate for its current-year earnings has moved up 24.2% over the past 60 days. American Axle currently carries a Zacks Rank of 3.
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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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