4 Stocks With Winning Strategies For Q4

Investors are shying away from the stock market where uncertainty and volatility are showing no signs of cooling down. This aversion was quite expected after the major U.S. bourses suffered their worst third-quarter performance in four years hit by spiraling woes that started with the China-led deceleration fears and continued till the biotech meltdown.

However, the U.S. economy is on a firmer footing with a healing job market and increasing consumer confidence, suggesting bullish sentiment for the stocks in the coming months. The crucial holiday shopping season and an expected Santa Claus Rally would lead to further gains in the stocks.

Thus, investors willing to remain invested in the stock world could find some ways to gain in the final three months of the year. For them, we have highlighted some strategies to consider before selecting stocks.

Finding the Best Industries

The first step is to find the industries that are expected to outperform in the coming months. This daunting task is made fairly simple by the Zacks Industry Rank. The Zacks Industry classification divides the business world into 16 sectors, comprising 60 medium or M-level industries and 265 expanded or X-level industries.

We rank all 265 X-level industries based on the earnings outlook of the constituent companies in each industry. The top 132 Zacks Ranked industries are the top 50%, indicating the best-performing ones. The rest would be in the bottom 50% of industries.

Focus on Top-Ranked Stocks

Once the industries are selected, investors should look for the stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) in them. This is because top-ranked stocks indicate rising earnings estimates. Now, our Zacks Stock screener makes it easy to find such stocks with strong earnings momentum that are more likely to beat the market.  

Debt/Equity Ratio

Debt/Equity ratio measures a company’s financial leverage or in other words the soundness of its long-term financial policies. The ratio shows how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity. The lower the ratio, the lesser the financial risk.

However, this ratio should be judged considering the nature of the company and the industry in which it operates. This is because the use of capital varies for different types of industries. For instance, a relatively high debt/equity ratio could be common for one industry but high risk for another.

Return on Equity (ROE)

ROE measures the ability of a firm to generate profits from its shareholders’ investments in a company. This is an important profitability ratio as it shows how efficiently management is using equity financing to fund operations and expand business. The higher the ratio, the better it is. Here too, the significant of the ratio differs from industry to industry.

Earnings Growth

Earnings growth reflects growth in a company’s net income over a specific period of time. Investors should look at the earnings growth rate for the ongoing fiscal year, which reflects the company’s ability to grow even in the current market turbulence. For this, the companies having double-digits growth, as per our model, could be better options for investors.

YTD Returns

Last but not least, investors should look at the stocks that have easily survived the recent market turmoil and delivered handsome returns from a year-to-date look.

Combining all these strategies, we have arrived at the following four winning picks for the final quarter of the year:

American Woodmark Corp. (AMWD - Snapshot Report)

Based in Winchester, Virginia, American Woodmark is a major American manufacturer and distributor of kitchen cabinets and vanities for the remodeling and home construction market in the United States.

Zacks Industry Rank: 13 (Top 5%)
Zacks Stock Rank: #1
Debt/Equity: 0.09 versus industry average of 0.54
ROE: 17.9% versus industry average of 16.4%
Fiscal Year Earnings Growth: 32.38%
YTD Return: 64.1%

NIKE Inc. (NKE - Analyst Report)

Based in Beaverton, Oregon, Nike is one of the largest sellers of athletic footwear and athletic apparel in the world. It is engaged in the in designing, developing and marketing of footwear, apparel, equipment, and accessories for men, women and kids.

Zacks Industry Rank: 94 (Top 35%)
Zacks Stock Rank: #2
Debt/Equity: 0.08 versus industry average of 0.20
ROE: 28.1% versus industry average of 26.0%
Fiscal Year Earnings Growth: 15.11%
YTD Return: 29.25%

Hormel Foods Corporation (HRL - Analyst Report)

Based in Austin, Minnesota, Hormel Foods is a multinational manufacturer and marketer of high-quality, brand-name food and meat products worldwide.

Zacks Industry Rank: 113 (Top 43%)
Zacks Stock Rank: #2
Debt/Equity: 0.06 versus industry average of 0.68
ROE: 18.3% versus industry average of 15.6%
Fiscal Year Earnings Growth: 16.77%
YTD Return: 25.41%

Vail Resorts Inc. (MTN - Snapshot Report)

Based in Broomfield, Colorado, Vail Resorts is a leading operator of mountain resorts and urban ski areas in the United States.

Zacks Industry Rank: 105 (Top 40%)
Zacks Stock Rank: #2
Debt/Equity: 0.92 versus industry average of 0.97
ROE: 13.0% versus industry average of 11.3%
Fiscal Year Earnings Growth: 21.63%
YTD Return: 16.17%