As the second-quarter reporting cycle gets underway, investors would look to add stocks that have the potential to surpass earnings expectations in the quarter. This is because an earnings beat generally leads to stock price appreciation.
Investors, after all, are driven by the sole objective of generating handsome returns from their portfolio. None of them want their hard-earned money to go down the drain.
However, the task of including potential outperformers in one’s portfolio is not an easy one. In fact, equity market tricks are not easy to master with a deluge of stocks flooding the space at any point of time. The task becomes even more daunting when one tries to select a winning portfolio without proper guidance. Given time constraints, it is in the best interest of investors to be guided by experts in the field.
Seek Broker Advice
The concerned experts are brokers. Generally, three types of brokers (sell-side, buy-side and independent) are present in the investment world, with sell-side analysts being most common. They are employed by various brokerage firms to provide unbiased opinion to investors on the stocks under their coverage after thorough research. Buy-side analysts are employed by hedge funds, mutual funds etc. while the independent ones simply sell their reports to investors. Brokers, irrespective of their types, do intense research on stocks in their coverage before coming up with recommendations.
Brokers/analysts attend company conference calls/presentations and scrutinize every detail available publicly before advising investors about their course of action (buy, sell or hold a stock).
Be Guided by Earnings Estimate Revisions
Brokers arrive at their recommendation on a stock after thoroughly analyzing the nitty-gritty. Therefore, it is natural for investors, on seeing brokers improve their recommendation on a particular stock, to believe that there is a solid reason/logic behind it. In fact, a rating upgrade generally leads to stock price appreciation. Similarly, the price of a stock may plummet following a rating downgrade.
