5 Stocks Made Attractive By Recent Broker Rating Upgrades

The second-quarter reporting cycle is in full swing with multiple companies coming up with their quarterly financial numbers. The picture that has emerged so far is quite encouraging and the season remains on track to end on a strong note. A high proportion of companies have reported better-than-expected earnings per share in the current reporting cycle.

Generally, an earnings beat leads to an appreciation in stock price. Given this highly bullish 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 associated with the stock market make it even more difficult for individual investors to select outperformers in the absence of proper guidance.

Be Guided by Broker Advice

The requisite guidance to design a winning portfolio comes from brokers. Brokers, not only scrutinize the publicly available financial documents, but also attend company conference calls and other presentations.

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 natural for investors to be guided by the direction of estimate revisions while deciding their course of action on a particular stock. Estimate revisions serve as an important pointer regarding the price of a stock.  In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade.

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

Making the Most of Broker Opinions

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 foolproof.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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