For Immediate Release
Chicago, IL – December 13, 2022 – Today, Zacks Investment Ideas feature highlights Flex Ltd. FLEX.
Singapore-Based Tech Stock Completes Powerful Cup-with-Handle Pattern
The economy moves in reasonably predictable cycles. As the economy expands and contracts, so do the financial performances of companies across our 16 Zacks sectors. Given a positive outlook, economically-sensitive companies perform better and investors are prompted to buy their shares. As the outlook shifts to more bearish, investors may opt for investments that can better weather economic downturns.
Certain sectors have been shown to produce the largest number of big winners over time. These include technology, consumer discretionary, and healthcare. The majority of top stocks are usually in leading sectors.
Roughly half of a stock’s future price appreciation is due to its underlying sector and industry group combination, and because specific sectors lead different phases of the economic cycle, we can see how important it is to consider a stock’s sector before deciding to make a purchase.
The Zacks Sector Rank
The Zacks Sector Rank helps us identify which sectors (along with corresponding industry groups and individual stocks) are primed to outperform. The Zacks Sector Rank is determined by calculating the average Zacks Rank for all of the stocks in the sector and then assigning an ordinal rank to it. As mentioned earlier, Zacks classifies all stocks into one of sixteen sectors.
The average Zacks Rank is calculated for every sector every day. So, if a sector has the best average Zacks Rank, it would be considered the top sector (1 out of 16), which would place it in the top 1% of Zacks Rank Sectors. A top Zacks Sector Rank means more stocks within that group are receiving upward earnings estimate revisions. Earnings estimate revisions lie at the heart of the Zacks Rank, and these revisions have been shown to be the most powerful force impacting stock prices.
To further highlight the significance of picking stocks in the best sectors, along with how the Zacks Sector Rank is one of the best ways to do this, take a look at the chart below. We put our all sixteen sectors into two groups: the top half (i.e., sectors with the best average Zacks Rank) and the bottom half (the sectors with the worst average Zacks Rank).
Over a recent 10-year period, using a one-week rebalance, the top half of sectors outperformed the bottom half by nearly twice as much.
As we can see, targeting stocks and funds that are aligned with the top sectors can give us a leg up against the market. I think the graph above makes it very clear that identifying top sectors is a great top-down approach that will lead us to stocks that are primed for major runs.
The Zacks Computer and Technology sector is currently ranked in the top 38% out of all 16 Zacks Ranked Sectors. Because this sector is ranked in the top half of all sectors, we expect it to outperform over the next 3 to 6 months.
Let’s examine a highly-ranked stock within this leading sector.
Flex provides design, engineering, manufacturing, and supply chain services and solutions to original equipment manufacturers globally. The company provides cross-industry technologies including human-machine interface, internet of things platforms, sensor fusion, and smart audio. FLEX also offers integrated solar tracker and software solutions used in utility-scale and ground-mounted solar distribution projects. Based in Singapore, FLEX serves the communications, cloud, automotive, industrial, healthcare, consumer devices, and energy industries.
FLEX, a Zacks Rank #2 (Buy), has surpassed earnings estimates in each of the past four quarters with an 18.47% average surprise. The technology company most recent reported fiscal Q2 EPS back in October of $0.63/share, a 23.53% surprise over the $0.51 consensus estimate. Revenues during the quarter of $7.77 billion also exceeded projections.
Analysts are bullish on the stock and have increased earnings estimates recently. The fiscal Q3 estimate has been bumped up by 9.09% in the past 60 days. The Zacks Consensus Estimate now stands at $0.60/share, reflecting potential growth of 20% relative to the same quarter last year.
This year, FLEX has broken out of a multi-year base in a powerful cup-with-handle pattern. The stock has advanced more than 21% this year and is currently hitting a 52-week high. Only stocks that are in extremely powerful uptrends are able to display immunity to this year’s volatility and weather bear markets so gracefully.
This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions. Be sure to keep an eye on FLEX as we head into the new year.
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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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