The Q1 earnings season, which is almost over, has unveiled a rosy picture. With only a handful of companies left to report, the season is expected to end on a high note, displaying substantially higher earnings growth than in recent quarters. Apart from displaying significant bottom line growth, a sizeable proportion of companies have reported better-than-expected earnings per share in the Q1 reporting cycle.

Generally, an earnings beat leads to stock price appreciation. Given this favorable background, investors would like to add outperformers to their portfolios for healthy returns.

However, the task is easier said than done. With a plethora of stocks flooding the market at a particular point of time, one needs to have thorough understanding of the knitty-grities associated with investing, to select appropriate stocks for his/her portfolio. Given the time constraint that we all face these days, it is almost impossible for individual investors to have the requisite expertise.

This is where the requirement of proper guidance comes in. To stop their hard-earned money from going down the drain, investors pay heed to the advice of brokers while designing their respective portfolios.

Why Pay Heed to Broker Advice?

The opinion of brokers acts as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock. Broker ratings do not come from the blue and are backed by sound logic. They have a lot more information on a company and its prospects than individual investors as they not only scrutinize the publicly available financial documents, but also attend company conference calls and other presentations.

Given their expertise, it is prudent for investors to pay heed to broker advice while formulating their investment strategy for generating handsome returns. Of the three types of brokers/analysts (sell-side, buy-side and independent) present in the investment world, sell-side analysts are most common. Various brokerage firms employ them to provide an unbiased opinion to investors after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors.

Earnings Estimate Revisions – An Invaluable Pointer

All types of brokers follow stocks in their coverage minutely. They revise their earnings estimates on a stock after carefully examining the pros and cons of an event for the concerned company. All the decisions by brokers are backed by solid logic or justification and thus estimate revisions serve as an important pointer regarding the price of a stock.

For instance, an earnings beat by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings results often lead to stock price depreciation. Investors tend to be guided by the direction of estimate revisions and stock price while formulating their investment strategy. 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.

Revenue Performance Not to be Ignored

While we have talked about the bottom line in detail, the revenue performance should not be overlooked. 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 lacklustre 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).

We have also added the following screening parameters to ensure that the strategy is a winning one:

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 (as a stock trading below $5 will not likely create significant interest for most of the 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 in terms of 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:

Big 5 Sporting Goods Corporation (BGFV Quick QuoteBGFV - Free Report) is a leading sporting goods retailer in Western U.S. This Zacks Rank #1 (Strong Buy) company has an impressive record with respect to earnings, having surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 94.48%. You can see the complete list of today’s Zacks #1 Rank stocks here.

New Albany, OH-based Commercial Vehicle Group Inc. (CVGI Quick QuoteCVGI - Free Report) supplies interior systems, vision safety solutions and other cab-related products for the global commercial vehicle market, including the heavy-duty (Class 8) truck market, the construction market and other specialized transportation markets. The Zacks Rank # 1 company surpassed the Zacks Consensus Estimate in three of the last four quarters by an average in excess of 100%.

Boise Cascade Company (BCC Quick QuoteBCC - Free Report) is one of the largest producers of engineered wood products and plywood in North America and a U.S. wholesale distributor of building products. The Zacks Rank # 1 company surpassed the Zacks Consensus Estimate in three of the last four quarters by an average in excess of 100%.

Tilly's, Inc. (TLYS Quick QuoteTLYS - Free Report) , based in Irvine, CA, is a retailer of casual apparel, footwear, and accessories. The Zacks Consensus Estimate for the current quarter has increased in excess of 100% to 5 cents per share over the last seven days for this Zacks Rank # 3 (Hold) stock.

The Carlyle Group LP (CG Quick QuoteCG - Free Report) is a diversified multi-product alternative asset management firm. The company, carrying a Zacks Rank #2 (Buy), surpassed the Zacks Consensus Estimate in two of the last four quarters by an average of 22.09%.

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.

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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