How to find ‘strong buy’ stocks as Q2 earnings season heats up

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The big Wall Street banks have started the earnings season. Investors have reacted somewhat positively to companies such as Citigroup, Goldman Sachs and JPMorgan despite mixed messages on the economic outlook in the US and beyond.

The broader market popped up on Tuesday as Wall Street braces for an onslaught of financial results from top tech companies and beyond over the next few weeks. The current reporting cycle will be crucial for the market to assess updated corporate guidance, which better reflects the Fed’s rate hike efforts, inflation and fears of an economic slowdown.

Wall Street didn’t react meaningfully to June’s hot CPI data. The lack of selling could mean that the Fed’s tightening efforts could feed into stock prices more than some are realizing.

Thankfully, the market won’t have to wait much longer to learn exactly what the Fed is planning next on the anti-inflation front as its FOMC meeting is scheduled for July 26th and 27th.

Many may wish to remain on the sidelines until more concrete data arrives. But there are still opportunities to open positions in strong stocks and find names that have managed to climb amid all the selling. And if history is any guide, after the worst first six months of the year since 1970, the stock market could be poised for a second-half rebound.

Here’s how investors can use the Filtered Zacks Rank 5 Stock Screen to find potential winners as Q2 earnings season kicks off.

Zacks Rank #1 (strong buy) Stocks outperform the market in both good times and bad. However, there are over 200 stocks that receive a Zacks #1 rank at any given time. As such, it’s helpful to understand how filters are applied to Zacks rank to narrow the list down to a more manageable and tradable group of stocks.

parameter

Of course, there are only three items on this screen. But together, these three filters can lead to impressive returns.

• Zacks rank equals 1

Starting with a #1 Zacks rank is often a strong place to start, as it has averaged annual returns of about 24.4% per year since 1988.

• Estimated % change (Q1) over 4 weeks greater than 0

Positive revisions to current quarterly estimates over the last four weeks.

• % change in agent rating over 4 weeks equals top #5

The top 5 stocks with the best average broker rating have changed over the past four weeks.

This strategy loads with the research wizard and is called bt_sow_filtered zacks rank5. It can be found in the SoW (Screen of the Week) folder.

Here are two of five Stocks that qualified for the Filtered Zacks Rank 5 strategy today…

Caleres CAL

Caleres (CAL) is a global footwear company with a portfolio that includes approximately 1,000 Caleres-owned retail locations, 13 owned e-commerce sites, leading department and specialty stores, and its partners’ sites. Brands include Famous Footwear, Allen Edmonds, Dr. Scholl’s Shoes and others. Caleres’ footwear and apparel market currently ranks in the top 35% of over 250 Zacks industries. This is helpful at all times, but especially during market and economic downturns.

Caleres stock is up 24% in 2022 compared to the market’s huge decline and the broader consumer staples sector’s 34% decline. CAL shares are now up over 300% over the past two years. Some investors might also be drawn to the sub-$30 per share price and 1% dividend yield. And its valuation is strong, as CAL trades at 6 times forward earnings versus 21.5 times its industry and 16.4 times its sector. Also, Zack’s estimates are that the company’s earnings and revenue will grow both this year and next.

The Camp of Cooks, Inc. CHEF

The Chefs’ Warehouse is a top specialty food distributor in the United States and Canada, with a focus on the upscale side of the foodservice scene. The company aims to “serve chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining restaurants, country clubs, hotels…” and beyond. Chefs’ Warehouse stocks and distributes over 50,000 products to more than 35,000 customer locations.

Chefs’ Warehouse on June 22 raised its 2022 forecast due to strong out-of-home consumption, despite growing fears of an economic slowdown. CHEF stock is part of an industry that is in the top 37%. Better yet, Zacks estimates that revenue will grow 38% in 2022 and another 12% in 2023, with earnings growth being even more impressive. CHEF stock is up over 16% in 2022 and has climbed 132% over the past 10 years to outpace the sector’s 42% rise.

Check out the rest of the stocks on this list and start trading Filtered Zacks Rank 5 (or any of our other strategies) in your own account. Remember, the key to successful screening is finding screens that have had profitable results in the past. And that’s exactly what you get with Research Wizard’s stock selection and backtesting program.

Get the rest of the stocks on this list and look for the latest companies that meet these criteria. It’s easy to do. And it could help you find your next big winner. Start researching these companies today with a free trial of the Research Wizard. You can do it.

Click here to sign up for a free trial of Research Wizard today.

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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 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 mentioned in this material.

Disclosure: Performance information on Zacks portfolios and strategies is available at: https://www.zacks.com/performance/

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The Chefs’ Warehouse, Inc. (CHEF): Free Stock Research Report

Caleres, Inc. (CAL): Free Stock Research Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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