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5 Broker-Friendly Stocks to Sail Through the Turbulent Scenario

The ongoing Q1 earnings season has thrown up a stable picture. According to our latest Earnings Outlook, 77.6% of the S&P 500 companies have surpassed EPS estimates. This is highly reassuring, especially in the current scenario, which is engulfed by inflationary woes and other headwinds. What is all the more encouraging is that many companies, which have already reported their respective Q1 numbers, have issued better-than-expected guidance.

Given this backdrop, investors would like to add outperformers to their respective portfolios for healthy returns.

However, the task is far from easy with a plethora of companies present in the market. Moreover, the complexities related to the stock market and the prevalent turbulence make it even more difficult for individual investors to select outperformers in their portfolios without proper handholding. One way to proceed is by paying heed to broker advice. We believe that broker-favorite stocks like American Airlines AAL, Delta Air Lines DAL, Cleveland-Cliff CLF, Avnet AVT and Commercial Vehicle Group CVGI should be on an investors’ watchlist.

Why Broker Advice Holds Value

Brokers have a better understanding of stocks, deeper knowledge of the industry and a grasp over the broader economy. They scrutinize the company’s fundamentals and place them against the prevalent economic scenario to find out how attractive a stock is or otherwise as an investment option.

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Since brokers arrive at their recommendation (buy, sell or hold) on a stock after thoroughly analyzing the nitty-gritty associated with the company, it is advisable for investors to be guided by the direction of estimate revisions while deciding their course of action on a particular stock. The estimate revisions serve as an important pointer regarding the price of a stock. Estimates can move north for a number of reasons – favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario.

One of the well-accepted investment strategies is to maintain a diversified portfolio to generate handsome returns irrespective of market conditions. For instance, in the face of extremely low oil prices, analysts adopt a bullish stance on airline stocks and consequently raise estimates.  Naturally, adding such stocks to one’s portfolio in such a scenario might prove to be a bullish strategy.

Formulating a Winning Portfolio

We have designed a screener to arrive at stocks based on improving analyst recommendations and upward earnings estimate revisions over the last four weeks. However, considering only these factors does not make our strategy foolproof as the top line has not been considered.

Actually, according to many market watchers, a top-line outperformance is more creditable for a company than a mere earnings outperformance. To address top-line concerns, we have included the price/sales ratio in our screener, 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.

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

Price greater than 5: A stock trading below $5 will not likely be of significant interest to 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 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 passed the screen test:

American Airlines is based in Fort Worth, TX. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL. However, high fuel costs are hurting the bottom line.

Over the past 60 days, the Zacks Consensus Estimate for AAL’s 2023 earnings has been revised 17.3% upward. American Airlines currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Delta, currently carrying a Zacks Rank of 3, is based in Atlanta, GA. DAL is being bolstered by an uptick in demand for air travel (particularly for leisure). Driven by higher air-travel demand, total revenues increased 36.5% on a year-over-year basis in first-quarter 2023.

High fuel costs are, however, a bane. Over the past 60 days, the Zacks Consensus Estimate for DAL’s 2023 earnings has been revised 3.1% upward.

Cleveland-Cliffs is a leading iron ore producer in the United States. It supplies differentiated iron ore pellets under long-term contracts to major blast furnace steel producers in North America. The Mining and Pelletizing operation gains from low-cost, high-quality iron ore pellet production with substantial logistics and transportation advantages to serve the Great Lakes steel market. The company should gain from its merger with AK Steel Holding Corporation.

Over the past 60 days, the Zacks Consensus Estimate for CLF’s 2023 earnings has been revised 21.9% upward. Cleveland-Cliffs currently carries a Zacks Rank #3.

Avnet is benefiting from robust demand for its products across Asia, Europe, the Middle East and Africa regions. Improvement in the Americas also served as a tailwind. Its continued focus on boosting IoT capabilities is helping it expand in the newer markets and win customers. Moreover, cost-saving efforts are aiding profitability.

Avnet, currently carrying a Zacks Rank of 3, has an impressive surprise history, with its earnings surpassing the Zacks Consensus Estimate in each of the last four quarters, the average being 12.9%.

Commercial Vehicle Group 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.

Over the past 60 days, the Zacks Consensus Estimate for DAL’s 2023 earnings has been revised 3.1% upward. Commercial Vehicle Group currently carries a Zacks Rank #3.

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 backtest 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Avnet, Inc. (AVT) : Free Stock Analysis Report

Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

Cleveland-Cliffs Inc. (CLF) : Free Stock Analysis Report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

Commercial Vehicle Group, Inc. (CVGI) : Free Stock Analysis Report

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