5 High-Flying Stocks After Recent Broker Rating Upgrades

The sole aim of investors, while designing their portfolio, is to generate attractive returns. No one wants his/her hard-earned money to go down the drain. However, with a plethora of stocks flooding the stock market, the task is by no means an easy one. In fact, the process is like spotting a needle in a haystack, especially if the investor is unaided.

Choice of improper stocks can adversely impact his/her returns, thereby ruining the very objective of investing hard-earned money in the highly unpredictable stock market. To avoid such confusion, investors, more often than not, rely on the guidance provided by brokers as they have a clear insight into the complexities surrounding the investment world.

Brokers revise their earnings estimates after carefully examining the pros and cons of an event for the concerned stock. Naturally, their stock related actions (upgrade or downgrade) serve as an invaluable guide as far as fixing the target price of stock (s) is concerned.

Moreover, the abovementioned action of brokers is by no means arbitrary and is instead guided by sound logic. Thus, the direction of estimate revisions serves as an important pointer regarding the price of a stock.

For example, an earnings beat by a company generally leads to upward estimate revisions with prices moving north. Similarly, a stock may fall out of analysts’ favor due to adverse events like pipeline failure (for a biotech company). Trimming of earnings estimates by brokers often leads to stock price depreciation. Naturally, investors would look to dump such stocks on the basis of broker advice.

To take care of the bottom-line performance, we have designed a screen based on improving analyst recommendation and upward estimate revisions over the last four weeks.

Top Line to Be Considered As Well

Designing a strategy based solely on the bottom line is unlikely to culminate in a winning strategy. Actually, according to many market watchers, a revenue beat is more credible for a company than a mere earnings outperformance, especially in an environment of revenue weakness due to macroeconomic headwinds. To take care of the top line, we have included in our screen the price/sales ratio, which serves as a strong complementary valuation metric.

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