The sole aim of investors, while building their portfolio of stocks, is to generate handsome returns. They, after all, are putting their hard-earned money into the stock market. Naturally, they seek to make the most of their investments. No one wants to see his/her hard-earned money go down the drain.

However, the task is easier said than done with a plethora of stocks flooding the market at any point of time. With time at a premium these days, it is next to impossible for investors to keep track of market movements to identify opportune moment(s) for buying or offloading a particular stock to maximize returns. Picking the wrong stocks can adversely impact returns, thereby ruining the very objective of investing in a highly unpredictable stock market.

Broker Advice to the Rescue

Given this backdrop, it is in the best interest of investors to seek guidance from “experts in the field” as they can guide one to build a winning portfolio. The concerned experts are brokers.

Generally, three types of brokers (sell-side, buy-side and independent) are present in the investment world, with sell-side analysts being the most common. They are employed by various brokerage firms to provide unbiased opinion to investors on the stocks under their coverage after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors. Brokers, irrespective of their types, do intense research on stocks in their coverage before coming up with recommendations.

Brokers/analysts attend company conference calls/presentations and scrutinize every detail available publicly before advising investors about their course of action (buy, sell or hold a stock).

Earnings Estimate Revisions – An Invaluable Guide

Since brokers follow the stocks in their coverage minutely, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. In fact, a rating upgrade or downgrade by brokers has the potential to immediately influence the price of the stock.

Brokers arrive at their recommendation on a stock after thoroughly analyzing the nitty-gritties associated with the company. Therefore, it is natural for investors, on seeing them improving their recommendation on a particular stock, to believe that there is a solid reason/logic behind it. In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade.

Estimates can move north for a number of reasons – favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario. To take care of the earnings performance, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the last four weeks.

While we have talked about the bottom line in detail, the top line (revenue portion) cannot be ignored. Actually, according to many market watchers a revenue beat is more creditable for a company than a mere earnings outperformance, especially in an environment of revenue weakness due to macroeconomic headwinds like a strong dollar or lackluster demand for travel (which will hurt travel-focused companies). To address top-line concerns, we have included in our screen the price/sales ratio, which serves as a strong complementary valuation metric.

Screening Criteria

# (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.

To ensure that the strategy is a winning one, covering all bases, we have added the following screening parameters:

Price-to-Sales = Bot%10: The lower the ratio the better. Companies meeting this criteria are in the bottom 10% of our universe of over 7,700 stocks with respect to this ratio.

Price greater than 5: A stock trading below $5 will not likely create significant interest for most 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 if one judges by 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:

Bloomin' Brands, Inc. (BLMN Quick QuoteBLMN - Free Report) ,based in Tampa, FL, is a casual dining restaurant company with a portfolio of differentiated restaurant concepts.For 2017, the company’s earnings per share are projected to grow at 9.10%, much higher than the industry average of 5.70%. The company carries a Zacks Rank # 3 (Hold).

Big 5 Sporting Goods Corp. (BGFV Quick QuoteBGFV - Free Report) is a sporting goods retailer in western U.S., offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding, and in-line skating. The Zacks Consensus Estimate for 2017 has jumped 19 cents to $1.11 per share over the last 30 days for this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.  

Builders FirstSource, Inc. (BLDR Quick QuoteBLDR - Free Report) manufactures and supplies building materials, manufactured components, and construction services to professional contractors, sub-contractors, and consumers in the U.S. The company has an impressive track with respect to earnings, having surpassed the Zacks Consensus Estimate in three of the last four quarters by an average of 45.43%. The company carries a Zacks Rank #3.

Based in Columbus, OH and founded in 1967, Big Lots, Inc. is a broad-line closeout retailer in the U.S. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, and Electronics & Accessories. This Zacks Rank # 3 company has an impressive track record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 83.10%.

Avis Budget Group Inc. (CAR Quick QuoteCAR - Free Report) , based in New Jersey, provides vehicle rental services through a network of approximately 10,000 car and truck rental locations in the U.S., Canada, Australia, New Zealand, Latin America, the Caribbean, and parts of Asia. The Zacks Consensus Estimate for 2017 has increased 2 cents to $3.42 per share over the last seven days for this Zacks Rank #3 stock.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

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.

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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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