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Top-Ranked Stocks to Fill in the Sweet 16 Bracket

Sweta Killa
Discovery's (DISCA) first-quarter 2019 results are likely to benefit from strong sports content portfolio and expanding international footprint post Scripps Networks' buyout.

The frenzy surrounding the National Collegiate Athletic Association (NCAA) Men's Division I Basketball Tournament is not limited to the game enthusiasts but spreads to the investment world as well. It fuels growth in various corners. Millions of Americans look to capitalize on this opportunity by enthusiastically filling in the brackets that could lead to handsome returns from the stocks that are wagered on.

Popularly hailed as “March Madness,” the NCAA is underway with the champion slated to be crowned on Apr 8 at U.S. Bank Stadium in Minneapolis, MN. Since the basketball tournament has advanced to the Sweet Sixteen level (to be played on Mar 28), let’s fill in 16 stock brackets first and then compare those like we do for March Madness to get to the real winner.

How to Pick the Sweet 16 Stocks

Akin to the basketball championship, we have chosen four sectors – business services, computer and technology, oils & energy and construction – out of 16 Zacks sectors that have been outperforming this year. We have picked the four best industries (within the top 45%) from each sector with the help of the Zacks Industry Rank.

Then, we have picked one stock having a Zacks Rank #1 (Strong Buy) or 2 (Buy) from each industry with the highest market capitalization in order to get the Sweet Sixteen stocks. Top-ranked stocks indicate rising earnings estimates. Stocks with strong earnings momentum are more likely to outpace the market. This was a cakewalk all thanks to the Zacks Stock screener.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Once the stocks were zeroed in on, their one-year performance was considered for the qualifiers to the Elite Eight. Notably, the stocks with the highest industry ranks will matchup with the stocks having low industry ranks.

Business Services

The four top industries and their best stocks in the business services sector are as follows:

1.    Government Services: Rank in the top 3%; Stock – Booz Allen Hamilton Holding Corporation BAH
2.    Business - Office Products: Rank in the top 5%; Stock – Herman Miller Inc. MLHR
3.    Auction and Valuation Services: Rank in the top 17%; Stock – Copart Inc. CPRT
4.    Staffing: Rank in the top 23%; Stock – Robert Half International Inc. RHI

BAH vs. RHI: Here, BAH wins over RHI as it has returned nearly 53% in a year compared with a gain of 13% for the latter.
MLHR vs. CPRT: Copart beats Herman Miller in the same period by thin margin, gaining 17.2% compared with 17.1% for MLHR.

Computer and Technology

The four top industries and their best stocks in the computer and technology sector are as follows:

1.    Instruments - Scientific: Rank in the top 2%; Stock – MTS Systems Corporation MTSC
2.    Fiber Optics: Rank in the top 5%; Stock – Ciena Corporation CIEN
3.    Industrial Automation And Robotics: Rank in the top 5%; Stock – iRobot Corporation IRBT
4.    Electronics - Connectors: Rank in the top 5%; Stock – Methode Electronics, Inc. MEI

MTSC vs. MEI: Here, MTS Systems has outpaced Methode Electronics as it gained about 7% in a year against a decline of 27% for MEI.
CIEN vs. IRBT: iRobot Corporation is clearly the winner as it has returned more than 76% in a year compared with a gain of about 44% for Ciena.

Oil & Energy

The four top industries and their best stocks in the oil & energy sector are as follows:

1.    Solar: Rank in the top 7%; Stock – JinkoSolar Holding Company Limited JKS
2.    Oil and Gas - Refining and Marketing - Master Limited Partnerships: Rank in the top 14%; Stock – NGL Energy Partners LP NGL
3.    Coal: Rank in the top 16%; Stock – Consol Energy Inc. CEIX
4.    Oil And Gas - Integrated - Emerging Markets: Rank in the top 17%; Stock – CNOOC Limited CEO

JKS vs. CEO: CNOOC Limited has outpaced JinkoSolar with a gain of 28% against loss of 7% for the latter.
NGL vs. CEIX: NGL has gained 52%, much higher than 21.2% returned by Consol Energy in the same period.

Construction

The four top industries and their best stocks in the construction sector are as follows:

1.    Building Products - Air Conditioner and Heating: Rank in the top 5%; Stock – AAON, Inc. AAON
2.    Building Products - Lighting: Rank in the top 17%; Stock – Orion Energy Systems, Inc. OESX
3.    Building Products - Concrete and Aggregates: Rank in the top 32%; Stock – Summit Materials Inc. SUM
4.    Building Products - Heavy Construction: Rank in the top 40%; Stock – Great Lakes Dredge & Dock Corporation GLDD

AAON vs. GLDD: GLDD wins over AAON by a wide margin as it gained 111% in the past year compared with 19% rise of the latter.
OESX vs. SUM: Orion Energy easily defeated Summit Materials by climbing 9% against 50% decline for the latter.

The winners of each industry group will compete against each other in the Elite Eight.

Elite Eight (Mar 30)

Among the eight winning stocks, the highest average positive earnings surprise over the past four quarters was used to decide the winners of each sector that should advance to the Final Four.

BAH vs. CPRT: Booz Allen Hamilton has delivered average positive earnings surprise of 19.29% compared with 0.46% for Copart. Hence, BAH wins over CPRT.

MTSC vs. IRBT: Here, IRBT is the winner with average positive earnings surprise of 92.23% against negative surprise of 6.57% for MTS System.

CEO vs. NGL: Though both the stocks have delivered negative average earnings surprise over the past four quarters, CNOOC Limited wins over NGL Energy Partners.

GLDD vs. OESX: Great Lakes Dredge & Dock wins with an average positive earnings surprise of 474.12% over the past four quarters compared with 13.49% for Orion Energy Systems.

Final Four (Apr 6)

We now have the best stocks in the four sectors. To advance to the next level, we have considered the year-over-year earnings growth for the current fiscal year. Let us once again dig into the Zacks Industry Rank of the four stocks to decide the contenders.

Booz Allen Hamilton Holding Corporation (BAH) – Zacks Industry Rank in the top 3%
iRobot Corporation (IRBT) – Zacks Industry Rank in the top 5%
CNOOC Limited (CEO) – Zacks Industry Rank in the top 17%
Great Lakes Dredge & Dock Corporation (GLDD) – Zacks Industry Rank in the top 40%

So, in the matchups, we have Booz Allen Hamilton and Great Lakes on one side, and iRobot Corporation and CNOOC Limited on the other.

Booz Allen Hamilton Holding Corporation vs. Great Lakes Dredge & Dock Corporation: Booz Allen Hamilton earnings are expected to grow 35.32% this fiscal year while GLDD’s will likely rise 170.59%. With a higher projected earnings growth rate, GLDD wins and advances to the final round to take on the winner of IRBT vs. CEO.

iRobot Corporation vs. CNOOC Limited: Here, earnings at iRobot are expected to decline 42.4% for this year while CEO earnings will see growth of 4.57%. As a result, CEO wins and will matchup with Great Lakes Dredge & Dock for the championship.

The Championship (Apr 8)

Let’s look at our VGM Score (V stands for Value, G for Growth and M for Momentum), which is simply a weighted combination of the three. The VGM score when combined with a Zacks Rank #1 or 2 offer the best upside potential with a frenzy of cheap price, robust growth and strong momentum.

CNOOC Limited finally wins over Great Lakes Dredge & Dock with a VGM Score of B against C for the latter.

Result

Based on our internal research and metrics, CNOOC Limited, having a Zacks Rank #2 and a VGM Score of B, has emerged as the winner of the 2019 March Madness contest among stocks and could be a top bet for this year. While it was exciting and fun to dribble toward the winning stock, we expect the twists and turns in the NCAA tournament to lead to some dramatic moves in the investment world.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%. This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


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NGL Energy Partners LP (NGL) : Free Stock Analysis Report
 
CNOOC Limited (CEO) : Free Stock Analysis Report
 
AAON, Inc. (AAON) : Free Stock Analysis Report
 
Orion Energy Systems, Inc. (OESX) : Free Stock Analysis Report
 
Summit Materials, Inc. (SUM) : Free Stock Analysis Report
 
Great Lakes Dredge & Dock Corporation (GLDD) : Free Stock Analysis Report
 
Methode Electronics, Inc. (MEI) : Free Stock Analysis Report
 
Ciena Corporation (CIEN) : Free Stock Analysis Report
 
iRobot Corporation (IRBT) : Free Stock Analysis Report
 
MTS Systems Corporation (MTSC) : Free Stock Analysis Report
 
JinkoSolar Holding Company Limited (JKS) : Free Stock Analysis Report
 
Robert Half International Inc. (RHI) : Free Stock Analysis Report
 
Copart, Inc. (CPRT) : Free Stock Analysis Report
 
Booz Allen Hamilton Holding Corporation (BAH) : Free Stock Analysis Report
 
Macy's, Inc. (M) : Free Stock Analysis Report
 
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