Investors are shying away from the stock market where uncertainty and volatility are showing no signs of cooling down. This aversion was quite expected after the major U.S. bourses suffered their worst third-quarter performance in four years hit by spiraling woes that started with the China-led deceleration fears and continued till the biotech meltdown.
However, the U.S. economy is on a firmer footing with a healing job market and increasing consumer confidence, suggesting bullish sentiment for the stocks in the coming months. The crucial holiday shopping season and an expected Santa Claus Rally would lead to further gains in the stocks.
Thus, investors willing to remain invested in the stock world could find some ways to gain in the final three months of the year. For them, we have highlighted some strategies to consider before selecting stocks.
Finding the Best Industries
The first step is to find the industries that are expected to outperform in the coming months. This daunting task is made fairly simple by the Zacks Industry Rank. The Zacks Industry classification divides the business world into 16 sectors, comprising 60 medium or M-level industries and 265 expanded or X-level industries.
We rank all 265 X-level industries based on the earnings outlook of the constituent companies in each industry. The top 132 Zacks Ranked industries are the top 50%, indicating the best-performing ones. The rest would be in the bottom 50% of industries.
Focus on Top-Ranked Stocks
Once the industries are selected, investors should look for the stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) in them. This is because top-ranked stocks indicate rising earnings estimates. Now, our Zacks Stock screener makes it easy to find such stocks with strong earnings momentum that are more likely to beat the market.
Debt/Equity Ratio
Debt/Equity ratio measures a company's financial leverage or in other words the soundness of its long-term financial policies. The ratio shows how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity. The lower the ratio, the lesser the financial risk.
