Haves And Have-Nots

4/23/2012


You've heard both sides of this argument:

• Buy stocks with price momentum, because stocks going up tend to continue going up.

• Buy stocks when they're out of favor, because quality companies down on their luck should recover.

Neither of those ideas are fundamentally wrong, and investors can make money either way.

As a whole, the top-performing groups have superior sales and profit growth and higher Quadrix Overall and Momentum scores. The weak performers average higher Value scores and lower price/earnings ratios.

While the discrepancy in Overall scores suggests the laggards are fundamentally weaker, some groups like Telecom Services — Wireless and Services — Education earn above-average Overall scores. Conversely, groups like Homebuilding and airlines possess plenty of price momentum but little investment appeal. For a look at Quadrix scores on more than 150 industry groups, visit www.DowTheory.com/Go/Groups.

We have found appealing stocks in both leading and lagging groups, and we present a few of those names in the table below. Below we profile three of the featured stocks.

Up 14% since we first recommended the stock in early February, Macy's ($40; M) shares hit a 57-month high in April. The stock has managed a 67% total return in the past year, while its industry group, department stores, delivered a median loss of 3%. Earning a Quadrix Performance score of 91, the stock has also outrun most of our research universe. Yet a Value score of 72 suggests the shares remain attractively valued.

The price momentum reflects Macy's ability to gain share in the department-store market while also expanding operating profit margins. For 15 consecutive months, Macy's monthly growth in same-store sales has exceeded the average for department stores tracked by Thomson Reuters. During that stretch, Macy's averaged 5.1% growth and topped its peer group by an average of 1.6%. In a March buoyed by an early Easter, Macy's reported 7.3% higher same-store sales, ahead of the 5.9% average for its peer group. Looking ahead to April, Macy's forecasts 1% to 1.3% growth, versus 10.8% growth in the same month last year. Macy's is a Focus List Buy and a Long-Term Buy.


PPL ($27; PPL) yields 5.3% and earns a Value score of 85. At 10 times trailing earnings, shares trade 29% below their three-year average P/E ratio and 37% below the median utility. Yet PPL sharply outgrew its industry in 2011, with per-share earnings advancing 9% on a 49% jump in revenue, well ahead of median growth of 2% and 1% for diversified utilities. Acquisitions in November 2010 and May 2011 drove much of PPL's gains, but the company's return on assets also rose to its highest level in three years, suggesting improved efficiency as well.

The consensus projects per-share profits will fall 14% in 2012 but rise at an annualized rate of 6% over the next five years. PPL expects 70% of 2012 per-share earnings to come from its regulated electric and natural-gas utilities. Capital investments are projected to increase PPL's regulated asset base by 8% over the next five years, setting the stage for future sales and profit growth. The company also operates a power-generation and marketing business. PPL is a component of our Top 15 Utilities portfolio.


Rogers Communications ($40; RCI) has delivered a 6% total return to investors so far this year while the median wireless telecom provider managed a flat return. Despite that solid return, the shares still look cheap, earning a Value score of 72. At 13 times trailing earnings, Rogers trades 8% below its three-year average and in line with its peer group. The next catalyst for Rogers, the March-quarter earnings report, is scheduled to arrive April 24. The consensus calls for earnings per share of $0.76, flat compared to last year, on 2% higher revenue. But the company has exceeded consensus profit estimates by 4% or more in each of the last four quarters.

Growth is moderating for Canadian telecoms, and rising competitive pressures in the cable and wireless markets threaten operating profit margins. Rogers expects to grow sales in all three segments this year, with the strongest gains likely at its media business. Rogers expects up to 5% higher free cash flow for the year. The company hiked its quarterly dividend 11% in February. Rogers has also reportedly discussed partnering with Apple ($610; AAPL) on a television set, which could help revive growth in coming years. Yielding 4.0%, Rogers is a Long-Term Buy.

BEST VERSUS WORST
Below we present medians for stocks in 12 industry groups that have performed well this year and 12 that have lagged. Better-performing groups average higher valuations and higher sales and profit growth. The top performers earn higher Quadrix Overall and Momentum scores but lower Value scores.
Total Return
--- P/E Ratio ---
-- 12-Month Growth --
------------------- Quadrix Scores -------------------
Industry
YTD
(%)
Last 12
Months
(%)
Trailing
Vs. 3-Yr. Avg.
Sales
(%)
EPS
(%)
Oper.
Cash
Flow
(%)
Momen-
tum
Value
Quality
Perfor-
mance
Overall
Top Performers
Leisure Products
30
24
23
1.36
10
27
5
64
36
59
81
66
Home Furnishings
29
2
22
1.02
3
1
35
49
42
33
76
45
Chemicals — Diversified
27
(4)
13
0.87
16
28
8
64
72
72
65
75
Homebuilding 
26
(1)
23
0.92
(8)
(30)
(86)
51
12
12
72
19
Retail — Department
Stores
25
(3)
15
0.92
2
32
28
53
72
59
67
72
Oil & Gas — Refining
& Marketing
22
0
7
0.78
45
96
65
76
84
45
69
61
Containers — Metal
& Glass
22
3
16
1.07
13
1
20
50
55
56
66
52
Apparel
21
8
18
0.91
15
12
13
55
49
62
58
61
Retail — Homefurnishing
20
13
17
0.97
7
26
24
84
46
78
81
74
Retail — Automotive
19
37
16
1.08
10
26
2
75
49
61
85
70
Airlines
18
(2)
15
1.13
17
(18)
(6)
34
77
45
46
40
Personal Products
18
15
16
1.03
13
23
15
52
31
70
66
61
Avg. For Top Performers
23
8
17
1
12
19
10
59
52
54
69
58
Bottom Performers
Oil & Gas — Equip.
& Services
0
(17)
19
0.88
21
29
6
66
49
56
34
50
Telecom Services —
Wireless
0
(18)
13
0.97
6
(18)
7
38
77
55
27
57
Utilities — Diversified
(1)
15
15
1.1
2
1
10
42
53
47
42
46
Utilities — Electric
(3)
10
15
1.04
3
4
(42)
36
58
46
36
43
Telecom Services —
Integrated
(3)
(21)
14
1.01
4
(3)
2
25
72
42
23
43
Oil & Gas — Exploration
& Production
(3)
(20)
15
0.77
25
15
21
65
50
47
27
45
Oil & Gas — Drilling
(4)
(26)
10
0.93
29
25
32
56
72
38
21
56
Utilities — Gas
(8)
1
16
1.07
3
1
(19)
29
48
43
23
33
Coal & Consumable Fuels
(8)
(38)
9
0.7
14
22
11
37
68
27
11
26
Services — Education
(9)
(26)
10
0.65
3
(8)
(7)
31
82
79
20
70
Gold
(11)
(32)
15
0.61
31
53
62
53
31
40
7
21
Printing
(12)
(19)
10
0.96
4
8
31
47
91
42
18
57
Avg. For Top Performers
(5)
(16)
14
0.89
12
11
9
44
62
47
24
45
Avg. For All Groups
11
(3)
17
0.95
12
17
12
51
53
53
50
52
Notes: Quadrix scores are percentile ranks, with 100 the best. Medians exclude P/E ratios above 75 or below 0.

 

LEADERS AND LAGGARDS
We aren't afraid of stocks from groups that have performed well, as evidenced by the six stocks (four of which are on our Buy List) from groups among the leaders in year-to-date total return. But neither are we afraid of stocks from groups that have lagged. Below we also list 11 stocks, including two components of our Long-Term Buy List, from groups among the worst year-to-date performers. After a strong 2011, utility stocks are lagging this year. Stocks from our Top 15 Utilities Portfolio are presented in bold. Stocks on our buy lists are in green.
Total
--- Return ---
-- P/E Ratio --
-- 12-Mo. Growth --
--------------- Quadrix Scores ---------------
Company (Price; Ticker)
YTD
(%)
Last 12
Months
(%)
Trailing
Vs. 3-
Yr. Avg.
Sales
(%)
EPS
(%)
Oper.
Cash
Flow
(%)
Momen-
tum
Value
Quality
Perfor-
mance
Overall
Industry
Stocks from top-performing groups
Advance Auto
($90; AAP)
29
41
18
1.14
4
29
24
88
51
91
93
95
Retail —
Automotive
AutoZone
($381; AZO)
17
36
18
1.19
8
26
2
88
40
93
75
87
Retail —
Automotive
Bed Bath & Bey.
($70; BBBY)
20
25
17
0.97
8
32
24
86
46
93
81
95
Retail —
Homefurnish.
DuPont ($53; DD)
16
(1)
13
0.86
20
19
13
63
65
68
60
68
Chemicals —
Divers.
Macy's ($40; M)
25
67
14
0.95
6
35
39
74
72
59
91
91
Retail —
Dept. Stores
Valero Energy
($23; VLO)
12
(14)
6
0.52
54
146
33
54
98
45
49
72
Oil & Gas Ref.
& Mktg.
Stocks from poor-performing groups

Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com