If you’re looking for stocks with a strong chance to outperform in the near term, consider investing in stocks with upward revisions in earnings estimates. An earnings estimate is an estimate of a company’s earnings per share for the upcoming quarter or fiscal year. These estimates are generated by Wall Street analysts that research a company’s operations and evaluate management guidance.
Investors can use earnings estimates to get an idea of a stock’s growth potential to help make investment decisions. Sometimes earnings estimates are revised upwards or downwards to reflect expected changes in the company’s performance. When estimates are revised upward, shares of a company tend to perform better over the short and mid-term.
When estimates are revised downward, shares typically underperform. That’s why investors should consider stocks with recent upward revisions in their estimates. I took that further and filtered out any stocks that don’t have a Strong Buy or Buy rating in our POWR Ratings service. I then hand-picked three stocks that I believe should see gains in the months ahead: Micron Technology, Inc. (MU), EOG Resources, Inc. (EOG), and Celanese Corporation (CE).
Micron Technology, Inc. (MU)
MU is a leading supplier and manufacturer of memory and storage used in an assortment of electronic devices that range from personal computers to smartphones. The company historically focused on designing and manufacturing DRAM for PCs and servers but has expanded into the NAND flash memory market. It is number three in market share for total memory/storage shipments.
The company recently increased its quarterly revenue and earnings guidance due to greater than expected DRAM memory price improvements. Twenty-eight analysts have also revised their guidance for the company over the past thirty days. Both DRAM and NAND are forecasted to drive more growth. NAND-based solid-state drives are expected to be used in more and more PCs and data centers. DRAM prices are poised to rise dramatically as data center orders improve.
MU has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company also has a Value Grade of B, which isn’t surprising with a forward P/E of 20.20. It also has a fairly low price-to-book ratio of 2.6. MU has a Sentiment Grade of B, which means the stock is well-liked by analysts. Thirty-three out of thirty-seven analysts have a Strong Buy or Buy recommendation on the stock.
We also grade MU based on Growth, Momentum, Stability, and Quality. You can find those grades here. MU is ranked #23 in the B-rated Semiconductor & Wireless Chip Industry. You can find other top stocks in that industry by clicking here.
EOG Resources, Inc. (EOG)
EOG is an oil and gas producer with acreage in several U.S. shale plays, including the Permian Basin, the Eagle Ford, and the Bakken. In fact, it is one of the largest independent exploration & production companies operating in the United States. The company derives almost all of its production from shale fields in the U.S.
Ten analysts have revised their earnings estimates upward for the quarter ending in June in the past thirty days. The company recently announced plans to shift its strategy to something it calls “double premium,” which means developing wells that deliver a 60%+ after-tax rate of return at $40 WTI crude oil. The “double” is twice its original premium strategy from five years ago when it aimed for a 30% return.
The company has a huge inventory of drilling opportunities. It is one of the most proficient operators in the business, with initial production rates from its shale wells that consistently exceed the industry average. EOG has an overall grade of B, or Buy rating in our POWR ratings system. The company has a Growth Grade of B, as analysts expect earnings to soar 141.8% year over year in the quarter that ended in March. Its earnings are forecasted to jump a whopping 639.1% year over year in the quarter ending in June.
EOG also has a Quality Grade of B, which indicates a healthy balance sheet. The company had $3.3 billion in cash at the end of the year, compared with only $781 million in short-term debt. If you would like to access the rest of EOG’s grades (Value, Momentum, Stability, and Sentiment), click here. EOG is ranked #7 in the Energy – Oil & Gas industry. For more top stocks in the industry, click here.
Celanese Corporation (CE)
CE is one of the world’s largest producers of acetic acid and its downstream derivative chemicals, which are used in various end markets, including coatings and adhesives. The company also produces specialty polymers used in the automotive, electronics, medical, and consumer end markets and cellulose derivatives used in cigarette filters.
On its recent investor day in March, the company increased its 2021 guidance due to higher volumes in its acetyl chain and downstream engineered materials segments. Analysts have also revised their estimates, with fourteen analysts revising their estimates over the past thirty days and thirteen over the past seven days. The company is expected to benefit from producing an increasing proportion of its acetic acid in the U.S. to take advantage of the low-cost natural gas.
Plus, the recovery in the automotive and industrial end markets should drive an increase in volume in its Engineered Materials segment. CE is also poised to gain from expansion in emerging regions. The company is rated a Buy in our POWR Ratings with a grade of B. CE has a Momentum Grade of A, as its stock has shown bullish momentum over the near, mid, and long-term.
CE also has a Quality Grade of B due to its strong balance sheet. The company currently has a current ratio of 1.9, which indicates it has more than enough liquidity to handle short-term gains. To access the rest of CE’s grades (Growth, Value, Stability, and Sentiment), make sure to click here. CE is rated #21 in the A-rated Chemicals industry. To find other top stocks in the industry, click here.
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MU shares were unchanged in after-hours trading Tuesday. Year-to-date, MU has gained 24.35%, versus a 8.98% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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