Credit: Shutterstock photoWith first-quarter 2016 earnings lined up for release, the drastic downward revision in estimates seem to have dimmed hopes of a rosy first half or even a turnaround going ahead in the year.
In fact, the overall earnings picture for the quarter appears gloomy with estimates remaining low. Moreover, challenges are expected to plague the earnings performance in the current as well as upcoming quarters, with growth unlikely before late 2016.
Notably, over the last three months, Q1 estimates have fallen steeply, with the most prominent dampener being the slump in oil prices during the first six weeks of the year. Further, a strong U.S. dollar and lackluster global growth - particularly in China and other emerging markets - have made matters worse.
Thus, in the face of such lackluster earnings backdrop along with the renewed weakness in oil and other commodity prices, global growth concerns seem to be looming large.
The apprehensions have not spared the brokers as well, who have been indiscriminately downgrading stocks, mirroring the widespread concern. Thus, it might be prudent to assess the long-term fundamentals of the stock before dismissing them completely.
Zacks to the Rescue
There are a wide range of stocks thronging the investment space, and it is by no means an easy task for investors to choose stocks that have been downgraded by brokers and yet bear the potential.
Thus, to guide investors to the right picks, we recommend them to select stocks that carry a favorable Zacks Rank.
The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance.
Hence, with the help of the Zacks Stock Screener , we have zeroed-in on five stocks that carry the bearish sentiment of over 80% of brokerage firms yet flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
In addition, these stocks have other encouraging fundamentals and the potential to overcome the current headwinds.
5 Stocks Brokers Misread
GAMCO Investors, Inc.GBL is a publicly owned holding investment manager. The firm also provides wealth management, investment advisory, institutional research, brokerage, dealer, underwriting and distribution services to its clients.
This Zacks Rank #1 company has strong fundamentals and might be a good pick at the moment, contrary to brokers' opinion.
GAMCO has a favorable price to earnings ratio (P/E) of 9.88, lower than the industry average of 11.34. Moreover, the stock has been witnessing impressive momentum of late, having surged over 18% year to date. Additionally, the long-term EPS growth rate stands at a healthy 15%, further underlining the stock's potential.
Companhia Siderurgica NacionalSID manufactures hot and cold-rolled flat steel, galvanized sheets and tin plates for the packaging, automotive and construction industries.
Though the brokers are bearish on the stock, we believe the long-term prospects of this Zacks Rank #2 company are bright as domestic steel demand is likely to improve as investments for the development of ports, railroads, airports, wind farms and roads increase.
Also, the company's diversified business structure, with exposure in steel, iron ore mining, logistics, cement and energy industries will prove beneficial over the long run. Meanwhile, the company's solid cash position will allow it to reward its shareholders handsomely. Moreover, year to date, the stock has returned over 100%.
NII Holdings Inc.NIHD provides differentiated mobile communication services for businesses and consumers under the Nextel brand primarily in Brazil and Argentina.
NII Holdings currently carries a Zacks Rank #2 and enjoys favorable valuations. We note that the company possesses a price to sales (P/S) ratio of 0.32 and a price to cash flow (P/CF) ratio of 0.37. Compared to the industry at large, this is pretty favorable as the overall space has an average P/S and P/CF of 1.59 and 6.18, respectively.
Even though the brokers have been negative on the stock lately, its year-to-date return of nearly 7% clearly shows that it has the potential to boost your portfolio returns.
OCI Partners LPOCIP owns and operates integrated methanol and ammonia production facilities. Despite the current weak pricing environment, management is confident that both methanol and ammonia prices will follow a pattern of seasonal increases into the spring and if crude oil prices increase to a new steady-state level, m ethanol prices may gain as well.
The projected EPS growth is 83.6%, outperforming the industry estimate of 5.3%. Notably, the stock also has a Return on Equity (ROE) of 23.4% - a premium over the industry ROE of 14.7%. Further, OCI Partners' P/E of 6.04x is impressive as it compares favorably with the industry's average of 14.88x.
The strong fundamentals suggest that this Zacks Rank #2 company is set for long-term growth, dispelling the negative stance brokers have on it.
James Hardie Industries plcJHX , together with its subsidiaries, manufactures and sells fiber cement products and systems for internal and external building construction.
Notably, the company's top priority remains investing in the organic growth of the business, both through R&D and capacity expansion, which should spur growth. Moreover, the company's aim to maintain its dividend should please investors.
Nearly 10% surge in its share price year to date reflects the strong momentum at the company. Though not currently favored by brokers, long-term EPS growth projection of nearly 9% suggests more bullishness for this Zacks Rank #2 stock.
Take Your Chances
Though the above-mentioned stocks have fallen out of favor at the moment, their impressive fundamentals hold considerable promise.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
JAMES HARDI-ADR (JHX): Free Stock Analysis Report
GAMCO INVESTORS (GBL): Free Stock Analysis Report
CIA SIDERUR-ADR (SID): Free Stock Analysis Report
NII HOLDINGS (NIHD): Get Free Report
OCI PARTNERS LP (OCIP): Free Stock Analysis 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
