At present, one must consider the changing market backdrop and chalk out an investment strategy to help generate robust returns. Markets are bearing the brunt of macroeconomic and geopolitical uncertainties.
Amid such bearish investor sentiments, a conventional stock picking strategy is useful. One such way is selecting stocks with robust sales growth. So, stocks like BorgWarner, Inc. BWA, Carlisle Companies Incorporated CSL, Valley National Bancorp VLY, Vishay Intertechnology, Inc. VSH and Waste Management Inc. WM are worth a look.
One should keep in mind that sales growth is one of the primary factors for the long-term success of any company. Continuous growth in sales holds the key to the survival of any business. Sales growth not only provides insight into product demand and pricing power but is also important for growth projections and strategic decision-making.
It should be kept in mind that in case a company incurs a loss (although temporarily), it is valued on its revenues as top-line growth (or decline) is usually an indicator of its future earnings performance. Also, the absence of sales growth indicates that the company’s market share is not improving. Hence, some sustained sales growth is required to support the bottom line.
Price-to-Sales (P/S) ratio can be a suitable metric for stock valuation. The importance of the metric lies in the fact that management has limited opportunities to manipulate revenues, unlike earnings.
Yet, a huge sales number does not necessarily convert into profits. Hence, it is more prudent to consider a company’s cash position along with its sales number. Substantial cash in hand and a steady cash flow lend a company more flexibility with respect to business decisions and investments.
Selecting the Winning Stocks
To shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company’s sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that 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, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 30 stocks that qualified the screening:
Michigan-based BorgWarner is a global leader in clean and efficient technology solutions required for combustion, hybrid and electric vehicles. BWA’s products include four-wheel-drive and all-wheel-drive transfer cases (primarily for light trucks and sport utility vehicles or SUVs), as well as automatic transmission and timing chain systems.
BorgWarner’s expected sales growth rate for 2022 is 6.3%. The stock currently carries a Zacks Rank #2.
Based in Scottsdale, AZ, Carlisle is a diversified, global portfolio of niche brands and businesses with highly engineered and high-margin products. CSL is engaged in designing, manufacturing and selling a wide range of roofing and waterproofing products, engineered products and finishing equipment.
Carlisle’s sales are expected to jump 39.7% for 2022. The stock sports a Zacks Rank #1 at present.
Based in Wayne, NJ, Valley National is the holding company for Valley National Bank, which offers various commercial, retail, insurance and wealth management financial services products. VLY has more than 230 branch offices across northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, Long Island, Westchester County, New York, Florida and Alabama.
Valley National’s expected sales growth for 2022 is 37%. The company, at present, sports a Zacks Rank #1.
Malvern, PA-based Vishay Intertechnology is a global manufacturer and supplier of semiconductors and passive components. VSH also offers pyrotechnic igniters, microwave resistors, dividers thermo fuses and chip fuses.
Vishay Intertechnology’s expected sales growth rate for 2022 is 7.4%. The stock carries a Zacks Rank #2 at present.
Headquartered in Houston, TX, Waste Management is a leading provider of comprehensive waste management services in North America. WM is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States.
Waste Management’s expected sales growth rate for 2022 is 8.1%. The stock carries a Zacks Rank #1 currently.
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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: https://www.zacks.com/performance
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BorgWarner Inc. (BWA) : Free Stock Analysis Report
Waste Management, Inc. (WM) : Free Stock Analysis Report
Carlisle Companies Incorporated (CSL) : Free Stock Analysis Report
Vishay Intertechnology, Inc. (VSH) : Free Stock Analysis Report
Valley National Bancorp (VLY) : Free Stock Analysis Report
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