For Immediate Release
Chicago, IL – June 16, 2022 – Today, Zacks Investment Ideas feature highlights Unum Group UNM.
The 3 Triggers That Predict Explosive Gains
It’s safe to say that 2022 has been a difficult market environment for the bulls. Both stocks and bonds have been hit hard, and there’s been few places to hide and avoid the market’s current rut. While energy has been one of the clear leaders, many energy stocks are now extended and have begun to fall in recent days as investors take profits.
In a period of uncertainty, rising inflation and interest rates, and a very real possibility of a recession, how do we go about identifying where to place our investing capital given this type of market dynamic?
Let’s review three triggers that will help guide investors to stocks that are outperforming the market. Employing this type of process may provide a safe haven for investor capital moving forward.
Industry Group Association
We can start by detecting leading industry groups. The Zacks Industry Group Rank makes this process easy for investors, classifying industries based on the earnings estimate revisions of the underlying stocks within each industry. So if the stocks within a given group are experiencing positive earnings revisions, that industry will receive a higher ranking. Let’s take a look at an example.
The Zacks Insurance – Accident and Health Performance industry is ranked in the top 29% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. Digging a bit deeper, this industry has held up relatively well (-7.6% YTD) versus the S&P 500 (-20.98% YTD).
Quantitative research studies suggest about half of a stock’s future price appreciation is due to its industry grouping. By targeting stocks contained within leading industry groups, we can dramatically improve our odds of success.Rising Earnings Estimates
Positive earnings estimate revisions are at the heart of the Zacks Rank. Our research shows that rising earnings estimates are the most powerful force impacting stock prices. Only the top 20% of all stocks that are experiencing the most substantial revisions are ranked as either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). Let’s build on our example.
Within the Zacks Insurance – Accident and Health performance industry, Unum Group is a Zacks Rank #2 (Buy) stock. The insurance company has witnessed a steady batch of positive earnings estimate revisions as of late. For the current year, eight different analysts have increased their UNM EPS estimates by 13.62% in the past 60 days.
The 2022 Zacks Consensus Estimate is now $5.09 per share, which translates to a 17.01% growth rate relative to last year. This is the type of trend we want to look for when narrowing down our list of stocks to include in our portfolio.
Valuation – Putting it All Together
With the power of a leading industry rising earnings revisions at our backs, the last trigger to help guide our process is to locate stocks that are relatively undervalued. These stocks are typically garnering steady buying interest from institutions. Institutional investors are the big buyers (think pension funds, hedge funds, endowments, etc.) that have the power to really move stock prices.
Individual investors have a key advantage over institutions that give them a leg up in terms of speed. While it may take institutions a lengthy period of time to build or sell a position, individual investors have the ability to quickly buy or sell stocks.
By focusing on stocks such as UNM that are within leading industry groups, experiencing positive earnings estimate revisions, and that are relatively undervalued, we can narrow down our list of stocks to those with the best profit potential.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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