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Find Strong Stocks During Earnings Season with this 'First Profit' Screen
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Stocks climbed Tuesday morning as earnings reports pour in from companies across the economy. Wall Street is always forward looking and investors are laser focused on management guidance amid 40-year high inflation and supply chain setbacks, possibly made worse by covid lockdowns in major Chinese cities.
Outside of earnings reports, the market is focused on the Fed’s response to 8.5% inflation. Investors are starting to price-in larger, 50-basis point rate hikes going forward. The 10-year U.S. Treasury already spiked from 2.34% at the end of March to 2.90% on Tuesday, for its highest levels since 2018.
The tech-heavy Nasdaq is once again down around 16% from its records, with the S&P 500 8% lower. Both are beneath their 200-day moving averages and the Nasdaq found resistance at that level twice in the last month.
Even though stocks lost momentum over the last several weeks, driven lower by all of the factors that have dominated headlines for the past few months, the situation is not all doom and gloom. The outlook for S&P 500 companies in 2022 and beyond shows resilience, with margins, earnings, and revenue all projected to climb. Plus, interest rates remain historically low, which could support stocks as investors attempt to stay ahead of 8.5% inflation.
Investors who decide to hunt for stocks as we enter the thick of first quarter 2022 earnings season might consider utilizing our Zacks ‘First Profit’ screen to find strong stocks to buy.
First Profit
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 three of over 30 stocks that made it through this week's screen…
Snap Inc. posted its first profit in the fourth quarter of 2021. The social media firm’s landmark quarter showcased its ability to weather the storm caused by Apple’s privacy changes that have hurt Snap’s mobile advertising business, as well as Facebook parent Meta, and beyond. Snap’s outlook remains strong in the age of mobile entertainment, and its augmented reality offerings help make it a metaverse-style play.
At around $34 per share, Snap is trading 60% below its highs heading into its first quarter fiscal 2022 financial release due out on Thursday, April 21. Wall Street also remains rather high on Snap stock, with 70% of the brokerage recommendations Zacks has coming in at “Strong Buys.” Snap currently lands a Zacks Rank #3 (Hold), alongside an “A” grade for Growth in our Style Scores system.
Pure Storage aims to deliver the most advanced data storage technology and services, by offering a “storage as-a-service model seamlessly across multiple clouds.” Pure Storage has expanded its customer base within the business world by helping its clients put their data to use while also reducing the complexity and expense of managing the infrastructure.
Pure Storage topped Q4 fiscal 2022 estimates in early March. PSTG’s consensus earnings estimates have soared since its report to help the stock grab a Zacks Rank #2 (Buy) at the moment. Zacks estimates call for Pure Storage to post double-digit top and bottom-line growth both this year and next. And PSTG shares have climbed 48% in the last 12 months as part of a 200% run in the past five years.
Southwest, like all airlines, was hit hard by the pandemic. Thankfully, Southwest has already bounced back in a big way as passengers return to the friendly skies in droves. Southwest last quarter said it flipped from an adjusted loss to its “first quarterly profit, excluding special items, since fourth quarter 2019 before the COVID-19 pandemic began.” Southwest’s outlook shows it’s poised to navigate rising fuel prices, as people clamor for a return to normal, which means a lot more travel.
Zacks estimates call for Southwest’s 2022 revenue to soar 38% to $21.8 billion (on top of 75% growth in 2021) to put it within touching distance of its pre-covid levels of $22.4 billion. The airline is then projected to post another 13% revenue growth in 2023 to hit an all-time high. Southwest’s top-line expansion is set to help its earnings skyrocket. And LUV shares are trading 28% below their highs heading into its first quarter financial release on April 28.
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.
Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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.
Image: Bigstock
Find Strong Stocks During Earnings Season with this 'First Profit' Screen
Stocks climbed Tuesday morning as earnings reports pour in from companies across the economy. Wall Street is always forward looking and investors are laser focused on management guidance amid 40-year high inflation and supply chain setbacks, possibly made worse by covid lockdowns in major Chinese cities.
Outside of earnings reports, the market is focused on the Fed’s response to 8.5% inflation. Investors are starting to price-in larger, 50-basis point rate hikes going forward. The 10-year U.S. Treasury already spiked from 2.34% at the end of March to 2.90% on Tuesday, for its highest levels since 2018.
The tech-heavy Nasdaq is once again down around 16% from its records, with the S&P 500 8% lower. Both are beneath their 200-day moving averages and the Nasdaq found resistance at that level twice in the last month.
Even though stocks lost momentum over the last several weeks, driven lower by all of the factors that have dominated headlines for the past few months, the situation is not all doom and gloom. The outlook for S&P 500 companies in 2022 and beyond shows resilience, with margins, earnings, and revenue all projected to climb. Plus, interest rates remain historically low, which could support stocks as investors attempt to stay ahead of 8.5% inflation.
Investors who decide to hunt for stocks as we enter the thick of first quarter 2022 earnings season might consider utilizing our Zacks ‘First Profit’ screen to find strong stocks to buy.
First Profit
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 three of over 30 stocks that made it through this week's screen…
Snap Inc. (SNAP - Free Report)
Snap Inc. posted its first profit in the fourth quarter of 2021. The social media firm’s landmark quarter showcased its ability to weather the storm caused by Apple’s privacy changes that have hurt Snap’s mobile advertising business, as well as Facebook parent Meta, and beyond. Snap’s outlook remains strong in the age of mobile entertainment, and its augmented reality offerings help make it a metaverse-style play.
At around $34 per share, Snap is trading 60% below its highs heading into its first quarter fiscal 2022 financial release due out on Thursday, April 21. Wall Street also remains rather high on Snap stock, with 70% of the brokerage recommendations Zacks has coming in at “Strong Buys.” Snap currently lands a Zacks Rank #3 (Hold), alongside an “A” grade for Growth in our Style Scores system.
Pure Storage (PSTG - Free Report)
Pure Storage aims to deliver the most advanced data storage technology and services, by offering a “storage as-a-service model seamlessly across multiple clouds.” Pure Storage has expanded its customer base within the business world by helping its clients put their data to use while also reducing the complexity and expense of managing the infrastructure.
Pure Storage topped Q4 fiscal 2022 estimates in early March. PSTG’s consensus earnings estimates have soared since its report to help the stock grab a Zacks Rank #2 (Buy) at the moment. Zacks estimates call for Pure Storage to post double-digit top and bottom-line growth both this year and next. And PSTG shares have climbed 48% in the last 12 months as part of a 200% run in the past five years.
Southwest Airlines Co. (LUV - Free Report)
Southwest, like all airlines, was hit hard by the pandemic. Thankfully, Southwest has already bounced back in a big way as passengers return to the friendly skies in droves. Southwest last quarter said it flipped from an adjusted loss to its “first quarterly profit, excluding special items, since fourth quarter 2019 before the COVID-19 pandemic began.” Southwest’s outlook shows it’s poised to navigate rising fuel prices, as people clamor for a return to normal, which means a lot more travel.
Zacks estimates call for Southwest’s 2022 revenue to soar 38% to $21.8 billion (on top of 75% growth in 2021) to put it within touching distance of its pre-covid levels of $22.4 billion. The airline is then projected to post another 13% revenue growth in 2023 to hit an all-time high. Southwest’s top-line expansion is set to help its earnings skyrocket. And LUV shares are trading 28% below their highs heading into its first quarter financial release on April 28.
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.
Click here to sign up for a free trial to the Research Wizard today.
Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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/.