Find Strong Stocks to Buy in Q3 Earnings Season with this First Profit Screen


The stock market has bounced back over the last several sessions as Wall Street assesses the earnings results from the big banks that highlighted economic resilience amid mounting fears of a U.S. and global downturn. The coming weeks will feature reports from nearly every major technology stock including Microsoft and Apple, with their guidance set to have huge impacts on the market.

Despite the recent pop, the S&P 500 is still down around 23% in 2022, with the Nasdaq down 31% YTD to trade around where it was in September 2020. Wall Street is still struggling and likely will continue to find it difficult to properly price in everything now in order to find a bottom in the short term.

Clearly, a large amount of the Fed’s rate hikes and its coming plans are priced in, as is the current outlook for S&P 500 earnings in Q3, Q4, and fiscal 2023. Yields on the 10-year Treasury are back up at 4%, with the 2-year surging to 4.45% in anticipation of the Fed’s near-term commitment to lifting rates higher and keeping them in place to help drag down prices.

Core inflation, which strips out energy and food prices, jumped 6.6% YoY in September to top August’s 6.3% and come in at 40-year highs once again. This figure sent off alarm bells last week across Wall Street, Main Street, and Washington.

Even though the market might experience more volatility in the coming weeks and months, long-term investors are likely well-served to start small positions in fantastic companies or dollar cost averaging into great ETFs.

All that said, there are still plenty of stocks and some areas of the market that have not only stayed above the selling but have climbed rather significantly in 2022. Some of these companies have recently turned things around and provided upbeat guidance in the face of economic turmoil.

Today, we utilized our Zacks ‘First Profit’ screen to identify potentially winning stocks that turned things around recently and might continue to trend in the right direction.

First Profit

The idea is to search for companies that recently reported their first quarterly profit. More specifically, the screen searches for firms that just posted their first profit last quarter, after not posting a profit for at least the previous four quarters.

Finding companies that recently reported their first profits help investors find stocks that can prove to be big winners. These companies may vary widely. Some of the firms might be new, and this recent profit is perhaps the only profit in its short history.

Meanwhile, other companies might have held an impressive and long history of quarterly profitability, but for whatever reason haven’t seen a profit in a while. Therefore, the return to profit could spark a turning point that management had promised or Wall Street had been clamoring for.

The concept is relatively simple: if the trend has been one of improvement, there is a solid chance the trend will continue. This is true whether a company has been profitable, or is just reaching that key inflection point.

And that’s what we are screening for today…

• EPS for the previous 4 Quarters less than or equal to 0

(This means in each of the previous 4 quarters (except the most recently reported quarter) the company has reported earnings of less than or equal to zero, i.e., no profit.)

• EPS for the recently reported quarter greater than 0

(This time, the company reported earnings greater than zero, meaning they finally showed a profit.)

• Current Price greater than or equal to 5

(Stocks that are trading for less than $5 are more speculative.)

The screen is pretty simple, yet powerful. Here are two of the nearly 40 stocks that made it through this week’s screen…

NOV (NOV Quick QuoteNOV )

NOV provides equipment and components used in oil and gas drilling and production operations, as well as oilfield services, and supply chain integration services. NOV boasts that its technology-driven solutions help power the industry that powers the world.

NOV shares have climbed 34% in 2022 and 18% in the past 12 months to buck the market downturn alongside many other players in the oil and gas space. “Diminished global oil and gas inventories and productive capacity; rising energy security risks; and higher commodity prices are spurring increased oilfield activity,” CEO Clay Williams said in prepared Q2 remarks.

NOV posted strong results last quarter, with adjusted earnings of $0.18 per share vs. the Zacks consensus of $0.05 a share. NOV also upped its guidance for FY22 and FY23 as global demand for oil and gas remains high amid tight supply and geopolitical turmoil. Zacks estimates call for its sales to climb 27% in 2022 and another 15% in FY23 to reach $8.1 billion. Meanwhile, it is expected to swing from an adjusted loss of -$0.49 per share last year to +$0.49 this year and then post 108% EPS growth in FY23 to pull in $1.02 a share. NOV currently lands a Zacks Rank #2 (Buy).

Scorpio Tankers (STNG Quick QuoteSTNG )

Scorpio Tankers is in the petroleum transportation business. STNG’s fleet is made up of over 130 wholly-owned, finance leased, or bareboat chartered-in tankers which transport refined petroleum products around the globe. Scorpio Tankers aims to provide the best risk-adjusted returns in the industry. Scorpio Tankers is also heavily focused on increasing fuel efficiency, which should help it over the long haul.

Scorpio Tankers is part of the Transportation – Shipping space that ranks in the top 25% of over 250 Zacks industries right now and it’s projected to post huge top and bottom-line growth this year. Scorpio Tankers boosted its EPS outlook for FY22 and FY23 to help it land a Zacks Rank #1 (Strong Buy) amid concerns about inflation and slowing economic growth. Plus, STNG shares have surged over 280% in 2022 to hit fresh five-year highs recently.

Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It’s easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.

Click here to sign up for a free trial to the Research Wizard today.

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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.

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