The possibility of a trade war brewing between the United States and China — the world’s two biggest economies — threw 11 S&P 500 sectors into correction territory (decline of at least 10% from the latest peak) late last month. The trigger was the executive memorandum signed by President Trump to impose tariffs on up to $60 billion in Chinese imports targeting the technology, telecommunications and apparel sectors. In response, China proposed a list of 128 U.S. products worth $3 billion as potential retaliation targets.

Expert Advice - A Must in this Scenario

Given the widespread uncertainty, the task of building a portfolio of stocks for handsome returns is a herculean task.  Furthermore, with a huge number of stocks available in the market at any point of time, spotting potential outperformers is very tough for individual investors. In the absence of proper guidance, identifying a winning stock is akin to searching for ‘a needle in a haystack’.

Additionally, with time at a premium these days, it is next to impossible for investors to go through the extensive process. Given this backdrop, it is in the best interest of investors to seek guidance from “experts in the field." The concerned experts are brokers.

Broker Advice – The Saviour

The “experts” in the field of investing are brokers who are equipped with thorough knowledge about the space. Brokers, irrespective of their types (sell-side, buy-side or independent), have at their disposal a lot more information on a company and its prospects than individual investors. 

To attain their objective, they go through minute details of the publicly available financial documents apart from attending company conference calls and other presentations. Broker opinion should thus act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Direction of Earnings Estimates: A Winning Pointer

Since brokers meticulously follow the stocks in their coverage, they revise their earnings estimates after carefully examining the pros and cons of an event for the concerned company. The estimate revisions serve as an important pointer regarding the price of a stock.

For example, an earnings outperformance by a company generally leads to upward estimate revisions with prices moving north. Similarly, lackluster earnings 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.

Making the Most of Broker Opinions

The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions in earnings estimates over the last four weeks. Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it has been included. The price/sales ratio takes care of the company’s top line, making the strategy effective.

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 four 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 four 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:

Caleres, Inc. (CAL Quick QuoteCAL - Free Report) is a footwear retailer and wholesaler. The company is headquartered in St. Louis, MO. This Zacks Rank #3 (Hold) stock has an impressive expected earnings per share growth rate of 11% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bed Bath & Beyond Inc. , an omnichannel retailer of domestics merchandise and home furnishings, carries a Zacks Rank #3. The stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 2.2% upward over the last 90 days.

Ford Motor Company (F Quick QuoteF - Free Report) is an automotive, financial services and mobility company with operations in the United States and across the world. The stock, carrying a Zacks Rank #3, has seen the Zacks Consensus Estimate for current-quarter earnings being revised 5.1% upward over the last 30 days.

American Airlines Group Inc. (AAL Quick QuoteAAL - Free Report) operates more than 6,700 daily flights to over 330 destinations in more than 50 nations across the globe from its hubs. This Zacks Rank #3 stock is headquartered in Fort Worth, TX.  The stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 7.5% upward over the last 30 days.

Chicago Bridge & Iron Company N.V. provides a wide range of services like conceptual designing, technology, engineering, procurement, fabrication, modularization, construction, commissioning, maintenance, program management and environmental services on a global scale. This Zacks Rank #3 stock has an impressive expected earnings per share growth rate of 9% for three to five years.

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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