Overall market sentiments have been extremely bearish over the past few days. The major tech selloff, along with continued economic slowdown and coronavirus concerns, mainly led to this pessimistic stance. While it indicates that this could be the right time to enter the markets, one could end up buying less profitable stocks.
Thus, what should be the right approach to select fundamentally strong stocks with fairly solid prospects? Well, one way is to follow rating upgrades by brokers.
As brokers directly communicate with the top management, they have in-depth idea about what’s happening in a particular company. Also, they diligently go through the company’s publicly available documents and even attend conference calls.
Moreover, brokers have a thorough understanding of the overall sector and industry. They place the company fundamentals against the current economic backdrop to figure out how the stock will fare as an investment.
Hence, when brokers upgrade a stock, you can rely on their judgment. But solely depending on broker upgrades is not a good way to build your investment portfolio. Several other factors should be taken into consideration to ensure steady returns.
Picking the Winning Strategy
We have a screening strategy that will help you in your search for potential winners:
Broker Rating Upgrades (four weeks) of 1% or more: The screen selects stocks that have witnessed broker rating upgrades of 1% or more over the last four weeks.
Current Price greater than $5: The stocks must be trading above $5.
Average 20-day Volume greater than 100,000: A large trading volume guarantees that the stock is easily tradable.
Zacks Rank equal to #1 or 2: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven record of success. You can see the complete list of today’s Zacks #1 Rank stocks here.
VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are the five of 22 stocks that qualified the screening:
Based in Herndon, VA, K12 Inc LRN is a technology-based education company, which provides proprietary and third-party online curriculum, software systems and educational services. The company’s long-term (three to five years) estimated earnings growth rate is 20%. The stock, currently sporting a Zacks Rank #1, has witnessed 25% upward revision in broker ratings over the past four weeks.
DICK’S Sporting Goods, Inc. DKS operates as a major omni-channel sporting goods retailer. This Coraopolis, PA-based company’s long-term estimated earnings growth rate is 4.8%. The stock, sporting a Zacks Rank #1 at present, has witnessed 5.6% upward revision in broker ratings over the past four weeks.
Headquartered in Charlotte, NC, SPX Corporation SPXC is a diversified, global supplier of infrastructure equipment. Its long-term estimated earnings growth rate is 10%. The stock, currently carrying a Zacks Rank #2, has witnessed 16.7% upward revision in broker ratings over the past four weeks.
Etsy, Inc. ETSY offers e-commerce services. This Brooklyn, NY-based company’s long-term estimated earnings growth rate is 26.5%. The stock, carrying a Zacks Rank #2 at present, has witnessed 6.7% upward revision in broker ratings over the past four weeks.
Based in Duluth, GA, AGCO Corporation AGCO is a leading manufacturer and distributor of agricultural equipment and related replacement parts. The company’s long-term (three to five years) estimated earnings growth rate is 8.7%. The stock, currently sporting a Zacks Rank #1, has witnessed 9.1% upward revision in broker ratings over the past four weeks.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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
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