Upgraded Broker Ratings for Big Returns - Screen of the Week
April 01 2014 - 3:08AM
Zacks
I'm sure we've all had the pleasure of waking one morning and
seeing that a broker has upgraded one of our stocks. Usually that
stock is in for a good day and likely for several days or more
after that.
Unfortunately, we've probably all had the experience of waking
up and seeing one of our stocks downgraded too. Usually that stock
is in for a rough day, and probably more days to follow.
And while nobody can perfectly predict an upgrade or guard
against a downgrade, it's important to know how the market reacts
to these things. This is so you can stay in your upgraded winners
(or buy if you're on the fence) and consider getting out if a
downgrade comes your way.
One thing I've been doing lately is screening for stocks that
have recently seen a broker rating upgrade. Tests have proven that
stocks with broker rating upgrades outperform those that don't get
upgraded and outperform even more substantially those stocks that
get downgraded.
By how much?
I created three screens and ran some tests over the last 10
years. And I applied all the below criteria to stocks trading >=
$5 with an average daily trading volume of >= 100,000.
In screen 1: I backtested only those companies with broker
rating upgrades.
In screen 2: I tested companies with no rating change at all.
Whatever the rating was, good or bad, there was no change.
And in screen 3: I screened only those companies that received
broker rating downgrades.
Results
The tests pretty much confirmed what I had already suspected –
but the magnitude was a lot larger than I thought.
The broker rating upgrades over the last 10 years showed an
average annual return of 10.4%.
The ones with no rating change at all showed an average annual
rerun of 6.1%.
And the stocks with broker rating downgrades actually showed a
loss of -0.3%.
So the upgrades beat the ones with no rating change by nearly
twice as much. And they outperformed those with downgrades even
more. In fact, that was the difference between making money and
losing money.
Below are 5 stocks that have all been upgraded within the last 4
weeks:
MTZ MasTec
LAZ Lazard
PBI Pitney Bowes
NXPI NXP semiconductors
SKX Skechers
Get the rest of the stocks on this list and sign up for your
free trial of the Research Wizard. Start using this idea in your
own screens and start putting your own ideas to the test. It's easy
to do and you'll be on your way to picking better stocks
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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 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:
http://www.zacks.com/performance.
LAZARD LTD (LAZ): Free Stock Analysis Report
MASTEC INC (MTZ): Free Stock Analysis Report
NXP SEMICONDUCT (NXPI): Free Stock Analysis Report
PITNEY BOWES IN (PBI): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
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