gith extremely volatile markets, it has become increasingly difficult for investors to pick stocks and generate strong returns. Markets are currently feeling the brunt of the ongoing conflict between Russia and Ukraine and unprecedented inflation rates.
So, in such a scenario, a conventional stock picking strategy is helpful. One such method is to pick stocks that are steadily increasing in sales. In this regard, actions like Methanex Corporation MEOH, Carlisle Enterprises CSL, Huntington Ingalls Industries, Inc. Hi, Cheniere Energy Inc. LNG and Vista Corp. VSTs are valid bets.
Steady sales growth is the key to survival in an ever-changing and highly competitive business environment. It should be kept in mind that when companies suffer losses, albeit temporarily, they are assessed against their revenue, as revenue growth (or decline) is usually an indicator of future performance. profits of a business.
A company can improve its profits by employing expense control measures while maintaining stable revenues. However, sustainable earnings growth invariably requires higher revenues. Therefore, the price-to-sales (P/S) ratio can be an appropriate measure for stock valuation. The importance of this metric is that management has limited leeway to manipulate revenue, unlike earnings.
Although sales growth provides investors with an understanding of product demand and pricing power, it does not reflect whether the business is operating efficiently. A huge turnover does not necessarily translate into profits.
Therefore, considering a company’s cash position and sales may be a more reliable strategy. High liquidity and stable cash flow give a business more flexibility when it comes to business decisions and investments.
Selection of winning stocks
To shortlist stocks with impressive sales growth and a high cash balance, we selected Historical 5-year sales growth (%) greater than X-Industry and Cash flow over $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for stock picking. Therefore, we added other factors to arrive at a winning strategy.
P/S ratio lower than X-Industry: This measure determines the value assigned to each dollar of a company’s revenue. The lower the ratio, the better it is to choose a stock since the investor pays less for each unit sold.
% Revision of F1 Sales Estimate Revisions (Four Weeks) Above X-Industry: Better-than-industry estimate revisions are often seen as triggering a rise in the stock price.
Operating margin (average of the last five years) above 5%: Operating margin measures how well every dollar of a company’s sales translates into profit. A high ratio indicates that the company has good cost control and that sales are growing faster than costs – an optimal situation.
Return on equity (ROE) greater than 5%: This measure will ensure that sales growth translates into profits and that the company does not accumulate cash. A high ROE means the company is spending wisely and is in all likelihood profitable.
Zacks rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, regardless of the market environment. You can see the full list of today’s Zacks #1 Rank stocks here.
Here are five of the 13 actions that qualified the screening:
Based in Vancouver, BC Methanex is the world’s largest supplier of methanol. MEOH currently operates production sites in New Zealand, the United States, Trinidad and Tobago, Egypt, Canada and Chile.
Methanex’s forecasted sales growth rate for 2022 is 5.8%. The stock currently carries a No. 2 Zacks rank.
Based in Scottsdale, AZ Carlisle is a diversified global portfolio of niche brands and companies offering high-tech, high-margin products. CSL is dedicated to the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products and finishing equipment.
Carlisle sales are expected to increase 31.1% for 2022. The title currently sports a No. 1 Zacks rank.
Based in Newport News, Virginia, Huntington Ingalls designs, builds and maintains nuclear-powered ships. HII operates through three segments: the Ingalls Division, the Newport News Shipbuilding Division and the Technical Solutions Division.
Huntington Ingalls’ forecasted sales growth for 2022 is 13.9%. The company, at present, carries a No. 2 Zacks rank.
Energy Cheniere, headquartered in Houston, Texas, is primarily engaged in liquefied natural gas related business. LNG operates through its two business segments: LNG terminal and marketing of LNG and natural gas.
Cheniere Energy’s forecasted sales growth rate for 2022 is 81.3%. The stock sports a No. 1 Zacks rank at present.
Texas-based Irving Vista is an integrated power retail and power generation company. VST operates through six segments: Retail, Texas, East, West, Sunset and Asset Closure.
Vistra’s forecasted sales growth rate for 2022 is 33.4%. The stock currently sports a No. 1 Zacks rank.
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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 the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.
Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance
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Methanex Corporation (MEOH): Free Inventory Analysis Report
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Cheniere Energy, Inc. (LNG): Free Stock Analysis Report
Vista Corp. (VST): Free Stock Analysis Report
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