Tax Cuts Lift Markets: 5 Broker-Friendly Stocks in Focus

Given the buoyant mood prevalent in the markets these days, courtesy of the biggest overhaul in U.S. tax code in 30 years, it can safely be said that Christmas has arrived early for corporate America. The overhaul will see corporate tax rate being lowered from 35% to 21%. The huge drop will be implemented next year, instead of being delayed until 2019.

With the domestic economy on a solid footing, it is of little surprise that U.S. stock markets are hitting all-time highs on a fairly regular basis. With overall sentiments positive, it is natural that investors would like to design their respective portfolios with winning stocks.

However, the task is easier said than done as a deluge of stocks flood the market at any point of time. Moreover, the investing world is full of uncertainties and stock prices are sensitive to recent developments.

The task becomes even more difficult when one tries to select a winning portfolio without proper guidance. Given time constraints, it is in the best interest of investors to be guided by experts in the field.

Broker Advice – The Way Out

The concerned experts are brokers. Brokers, irrespective of their types (sell-side, buy-side or independent) undertake thorough research of the stocks covered by them.

They 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.

Consequently, the opinion of brokers should act as a valuable guide for investors while deciding their course of action (buy, sell or hold) on a particular stock.

Movement of Earnings Estimates: An Invaluable Pointer

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.

Given the expertise of brokers in investment matters, it is natural for investors to believe that there is a solid reason/logic behind brokers improving their recommendation on a particular stock. In fact, a rating upgrade generally leads to stock price appreciation and vice versa.

Estimates can move north for a number of reasons – favorable earnings performance, a bullish guidance, product launch or any favorable macro scenario.

Winning Strategy

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 to 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 foolproof.

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 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:

Big 5 Sporting Goods Corp. BGFV is a sporting goods retailer in western United States. The company offers 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. This Zacks Rank #3 (Hold) stock has seen the Zacks Consensus Estimate for current-quarter and current-year earnings being revised 8.7% and 2.3% upward, respectively, over the last 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chico's FAS CHS is a cultivator of brands serving the lifestyle needs of fashion-savvy women aged 30 years and above. The company, founded in 1983, is headquartered in Fort Myers, FL. This Zacks Rank #3 stock has an impressive expected earnings per share growth rate (next 3 to 5 years) of 15%. Moreover, the stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 16.7% upward over the last 30 days.

Boise Cascade Company BCC is a wood products manufacturer and building materials distributor. The company, headquartered in Boise, ID, has operations primarily in the United States and Canada. This Zacks Rank #1 (Strong Buy) stock has seen the Zacks Consensus Estimate for current-quarter and current-year earnings being revised in excess of 100% and 19% upward, respectively, over the last 60 days.

United Continental Holdings UAL is the holding company for both United Airlines and Continental Airlines. The Chicago-based company operates an average of nearly 5,000 flights a day to multiple destinations. This Zacks Rank #3 (Hold) stock has seen the Zacks Consensus Estimate for current-quarter and current-year earnings being revised 5.4% and 1.1% upward, respectively, over the last 60 days.

Delek US Holdings DK, headquartered in Brentwood, TN, is involved in refining and transportation operations. This Zacks Rank #1 stock has seen the Zacks Consensus Estimate for current-quarter and current-year earnings being revised 100% and 87% upward, respectively, over the last 60 days.

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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United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
 
Delek US Holdings, Inc. (DK) : Free Stock Analysis Report
 
Chico's FAS, Inc. (CHS) : Free Stock Analysis Report
 
Big 5 Sporting Goods Corporation (BGFV) : Free Stock Analysis Report
 
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