CHICAGO, July 21, 2011 /PRNewswire/ -- Stocks in this week's article include: Bed Bath & Beyond Inc. (NASDAQ: BBBY), Complete Production Services, Inc. (NYSE: CPX), Discover Financial Services (NYSE: DFS), Liquidity Services, Inc. (NASDAQ: LQDT) and Polypore International, Inc. (NYSE: PPO). Kevin Matras explains why looking for stocks with upgraded broker ratings can upgrade your portfolio to a whole new level.
Screen of the Week written by Kevin Matras of Zacks Investment Research:
I'm sure we've all had the pleasure of waking one morning and seeing that a broker has upgraded one of our stocks. Unfortunately, we've probably all had the experience of waking up and seeing one of our stocks downgraded as well.
While nobody can perfectly predict an upgrade or guard against a downgrade, it's important to know how the market reacts to these things so you can stay in your upgraded winners (or buy if you're on the fence) and consider getting out if a downgrade comes your way.
One thing I've been doing lately is screening for stocks that have recently seen a broker rating upgrade. Tests have proven that stocks with broker rating upgrades outperform those that don't get upgraded. Furthermore, they outperform even more against stocks that get downgraded.
By how much?
I created three screens and ran some tests over the last 10 years. And I applied all the below criteria to stocks trading at greater than or equal to $5 with an average daily trading volume of greater than or equal to 100,000.
In screen 1: I backtested only those companies with broker rating upgrades.
In screen 2: I tested companies with no rating change at all. Whatever the rating was, good or bad, there was no change.
And in screen 3: I screened only those companies that received broker rating downgrades.
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