Find Strong Stocks to Buy for April with this First Profit Screen
Stocks were down through late afternoon trading on Tuesday, driven lower by technology stocks. Wall Street sold tech names as short-term yields climbed, with the 2-year back to 4.06% after sliding to around 3.65% last Friday. The swing in rates marks the continuation of a rather wild start to the year for yields as Wall Street attempts to price in the Fed’s next moves.
Even though it is hard to know exactly what Jay Powell and the Fed will do, Wall Street is betting that the central bank will be far less hawkish the rest of the year, with the CME FedWatch Tool calling for cuts by the back half of 2023.
The big story Monday was that First Citizens agreed to buy large parts of Silicon Valley Bank. The news likely helps more on Wall Street breathe a bit easier as regional banking industry turmoil enters its third week in the spotlight after the Silicon Valley Bank collapse on March 10.
Despite the feeling of turmoil and volatility, the Nasdaq is trading solidly above its SVB failure lows and both its 50-day and 200-day moving averages. On top of that, the tech-heavy index and the S&P 500 already experienced so-called golden crosses in 2023. The bullish technical indicator occurs when the shorter-term moving average crosses above the long-term trend.
Plus, the VIX (CBOE Volatility Index) remains way below where it was in October and at various stages last year—it currently hovers around where it was at the start of 2023.
This backdrop should help investors remain upbeat and possibly ready to dive into beaten-down stocks for long-term upside. Today, we utilized our Zacks ‘First Profit’ screen to identify potentially winning stocks that turned things around recently and might continue to improve in April and beyond.
The idea is to search for companies that recently reported their first quarterly profit. More specifically, the screen searches for firms that just posted their first profit last quarter, after not posting a profit for at least the previous four quarters.
Finding companies that recently reported their first profits help investors find stocks that can prove to be big winners. These companies may vary widely. Some of the firms might be new, and this recent profit is perhaps the only profit in its short history.
Meanwhile, other companies might have held an impressive and long history of quarterly profitability, but for whatever reason haven't seen a profit in a while. Therefore, the return to profit could spark a turning point that management had promised or Wall Street had been clamoring for.
The concept is relatively simple: if the trend has been one of improvement, there is a solid chance the trend will continue. This is true whether a company has been profitable, or is just reaching that key inflection point.
And that’s what we are screening for today…
• EPS for the previous 4 Quarters less than or equal to 0
(This means in each of the previous 4 quarters (except the most recently reported quarter) the company has reported earnings of less than or equal to zero, i.e., no profit.)
• EPS for the recently reported quarter greater than 0
(This time, the company reported earnings greater than zero, meaning they finally showed a profit.)
• Current Price greater than or equal to 5
(Stocks that are trading for less than $5 are more speculative.)
The screen is pretty simple, yet powerful. Here are two of the over 40 stocks that made it through this week's screen…
Sea Limited (SE)
Sea Limited is a Singapore-based e-commerce and digital services giant. Sea Limited operates three core businesses across digital entertainment, e-commerce, and payments/financial services. Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan and accounts for about half of Sea Limited’s revenue.
Sea Limited grew its revenue at breakneck speeds over the last five-plus years as it raced to expand its reach to capture its share of the booming e-commerce space, as well as digital financial offerings and online gaming. The company still has plans to grow, but it is throttling down to focus on sustainable expansion and profits. Sea Limited and many other tech companies around the globe are focusing on cost-cutting and the bottom line amid higher rates and a slowing economy.
Sea Limited posted adjusted Q4 FY22 earnings of +$1.25 a share vs. the Zacks estimate that called for a -$0.75 a share loss. Looking ahead, Zacks estimates call for Sea’s revenue to surge 17% in 2023 and another 12% in FY24 to reach $14.79 billion to help it swing from an adjusted loss of -$1.29 a share to +$2.96 in FY23 and then jump 27% higher next year. Sea Limited’s positive earnings revisions help it land a Zacks Rank #1 (Strong Buy).
SE is part of the Internet – Software space that currently ranks in the top 25% of over 250 Zacks industries. Sea Limited trades 26% under its average Zacks price target and around 80% below its 2021 records.
Splunk Inc. (SPLK)
Splunk is a data analytics software firm that went public in 2012. SPLK gets its name from the word spelunking and it explores big data instead of actual caves. Splunk aims to help organizations “use data at any scale to become more secure and resilient.”
SPLK has thrived in the big data age, with its sales up from $451 million in 2015 to $3.65 billion last year (its fiscal 2023). Splunk, like Sea Limited, is now racing to cut costs even though it grew its revenue by 37% YoY last year, with total ARR up 18% because it posted a GAAP loss of -$1.71 a share—which marked a substantial improvement from -$8.29 in the prior year. Thankfully, the firm closed the year by posting GAAP earnings of +$1.44 per share.
Zacks estimates call for Splunk to post earnings and revenue growth both this year and next. Plus, Splunk’s positive earnings revisions activity helps it land a Zacks Rank #1 (Strong Buy) right now. SPLK shares are trading 27% under its average Zacks price target and about 60% below its all-time highs.
Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.
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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance/.
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