Use Quadrix To Find Hot Spots

10/6/2014


Looking for top picks in attractive sectors and timely industries? Your search should begin with Quadrix.

Based on the number of stocks with Quadrix Overall scores above 90 and Value scores above 50, today investors should favor five sectors: financials, technology, energy, consumer discretionary, and industrials. These sectors, which represent 71% of the roughly 5,000 stocks in our research universe, account for an outsized 84% of stocks with high Overall and Value scores. Currently, 23 of the 28 stocks on our Buy List hail from the five sectors.

Investors are likely to do even better focusing on high-potential stocks in standout industry groups. To isolate truly attractive industries, we compared the recent percentage of high Overall and Value scorers to historical norms. The table below shows percentages based on our broad research universe, slotting stocks into 24 groups. The data offer helpful insights, including:

• Nine groups stand apart — autos & components; commercial services & supplies; diversified financials; food, beverage & tobacco; insurance; real estate; semiconductors & semiconductor equipment; technology hardware; and utilities. All nine groups have seen the percentage of high scorers increase since the end of 2013 and currently boast percentages above norms for the last three and five years and since 1999. Seven of the nine groups come from the five top-scoring sectors listed on page 1, including three financial groups (diversified, insurance, and real estate) and two tech groups (semiconductors and hardware).

• Two groups were close runners up, with recent percentages topping norms across most periods — banks and telecommunication services. 

• Investors should tread carefully in four industries, including consumer durables & apparel; health-care equipment; materials; and pharmaceuticals & biotech. All four of these sizable groups have recent percentages well below historical norms. You need not completely avoid these groups, as they may contain some solid companies. However, investors should be especially picky when fishing in such murky waters. 

QUADRIX ISOLATES KEY INDUSTRIES
Attractive picks can be found in most industries, but certain groups look particularly timely based on the relative percentage of stocks with Quadrix Overall scores above 90 and Value scores above 50. For example, 29% of the 55 stocks in the Automobiles & Components group in our research universe earn high Overall and Value scores, up from 22% at the start of the year and above the norm of 13% since 1999.
---- % With Overall Above 90 and Value Above 50 ----
------ Historical Averages ------
Industry Group (No. Of Stocks)
Recent
(%)
End Of
2013
(%)
3
Years
(%)
5
Years
(%)
10
Years
(%)
Since
1999
(%)
Automobiles & Components (55)
29.1
21.8
21.0
17.5
12.5
12.9
Banks (526)
12.2
11.5
12.9
9.7
7.0
10.6
Capital Goods (360)
8.3
9.5
10.4
9.5
10.4
9.4
Commercial Svcs. & Supplies (135)
11.1
10.5
7.5
6.7
7.0
7.0
Cons. Durables & Apparel (139)
6.5
11.2
9.9
10.4
10.5
12.6
Consumer Services (160)
3.8
6.1
7.4
8.6
6.4
7.4
Diversified Financials (193)
17.6
17.1
12.6
11.9
13.1
14.2
Energy (451)
10.4
12.4
11.1
9.3
17.1
18.4
Food & Staples Retailing (36)
5.6
5.3
7.3
7.6
5.2
5.2
Food, Beverage, & Tobacco (120)
9.2
6.1
7.6
9.1
7.5
7.4
Health-Care Equipment (260)
2.7
5.3
4.9
7.0
6.0
6.7
Household & Pers. Products (46)
10.9
7.0
15.1
15.5
12.9
12.0
Insurance (126)
36.5
30.6
22.7
20.9
21.7
20.5
Materials (353)
6.5
8.5
9.3
10.0
11.5
9.3
Media (104)
5.8
8.1
9.8
8.7
6.0
5.1
Pharmaceuticals & Biotech (417)
1.7
3.7
4.1
5.4
4.1
3.2
Real Estate (256)
6.6
1.7
3.1
3.2
3.3
5.1
Retailing (163)
6.7
8.4
7.3
9.5
8.8
9.3
Semiconductors (144)
12.5
8.2
7.3
12.1
8.9
NA
Software & Services (398)
5.8
4.8
6.6
7.2
6.2
4.8
Technology Hardware (256)
10.5
6.9
8.7
9.4
7.6
6.2
Telecommunication Services (85)
9.4
9.2
8.1
9.7
8.4
7.3
Transportation (95)
9.5
11.1
10.0
8.6
10.3
10.2
Utilities (115)
4.3
1.7
2.4
2.4
2.5
3.2
NA Not available because group wasn't broken out separately in 1999.

The table below lists 13 top names in some of the market's hottest spots. Below we profile four standouts capable of strong capital gains in the year ahead.

Nearly 18% of diversified financial stocks in the S&P 1500 Index earn Overall scores above 90 and Value scores above 50, the third-highest percentage among the 24 groups. Ameriprise Financial's ($120; AMP) Overall score of 92 is more than 30 points above the group average.

The company also distinguishes itself from other asset managers based on valuation. Ameriprise trades at 15 times trailing earnings, 17% below the average for asset managers in the S&P 1500, and also looks cheap based on valuation ratios involving sales, book value, and cash from operations. Such a valuation might imply you're purchasing modest growth, but not with Ameriprise. The consensus projects per-share-profit growth of 20% this year and 12% next year. Ameriprise is a Focus List Buy and a Long-Term Buy.


Apple's ($99; AAPL) Overall score of 98 is tops in the technology-hardware group. The phone and computer titan also ranks No. 1 in Quality, Financial Strength, and Earnings Estimates scores and No. 2 in Momentum and Performance. While the shares aren't cheap relative to their peers, Apple seems attractively valued relative to its growth potential, with a PEG (price/earnings-to-growth) ratio of 1.1, below the group average of 1.8.

In the June quarter, Apple bought back $5 billion of its own shares, highest among S&P 500 companies and a strong follow-up to $18 billion repurchased in the March quarter. During that six-month period, Apple shrank its share base 4%. Over the last four quarters, Apple has generated $37.61 billion in free cash flow (operating cash flow minus capital spending and dividends), up 14% from the same period a year earlier. Robust free cash flow gives the company flexibility to keep up its share buybacks. Apple is a Focus List Buy and a Long-Term Buy. For more news on Apple, see Portfolio Review.


Only one of the 56 semiconductor and semiconductor equipment stocks in the S&P 1500 can top Lam Research's ($73; LRCX) Overall score of 96. Four of the six category scores that make up the Overall score are over 70. Despite Lam's 34% return so far this year, it still earns a Value score of 64 and trades at just 16 times projected year-ahead earnings, 9% below the industry median.

Lam Research controls about half of the market for deposition-and-etching machines that transform silicon wafers into semiconductors. In recent quarters, Lam has been gaining share from rival Applied Materials ($21; AMAT). Wafer front-end equipment, such as the machines Lam makes, accounted for 51% of total semiconductor-related capital spending in 2013, down from 57% in 2011. Over the next year, that percentage should rise as semiconductor makers satisfy pent-up demand. The profit-growth consensus for Lam (6% in the year ending June 2015 and 13% in fiscal 2016) seems unduly low. Lam Research is a Buy and a Long-Term Buy.


Jones Lang LaSalle's ($126; JLL) Quadrix Overall score of 96 is tops among the 90 real estate stocks in the S&P 1500, while its Momentum score of 98 is second-highest and its Value score of 67 is third-highest. Over the last 12 months, Jones Lang grew sales 22% and per-share profits 29%, helped by a broad-based decline in real estate vacancy rates in the U.S. and overseas.

In the June quarter, Jones Lang earned $1.37 per share, topping the consensus by $0.31, or 23%. Over the last 90 days, the 2014 profit estimate has risen by $0.35 (5%) and the 2015 estimate by $0.30 (4%). The consensus now projects profit growth of 20% this year on 21% sales growth and 12% next year, with sales up 7%. Jones Lang LaSalle, yielding 0.4%, is a Buy and a Long-Term Buy.

13 STANDOUTS FROM TOP INDUSTRIES
The A-rated stocks below earn Quadrix Overall scores above 90 and Value scores above 50, with both scores topping industry averages. All 13 stocks are in groups that feature a higher percentage of stocks with strong Overall and Value scores than historical norms. Stocks on our buy lists are presented in bold.
Quadrix Scores
--- (Industry Average) ---
Estimated
----- Current Year -----
Estimated
------ Next Year ------
Year-To-Date
Price Change
Company (Price; Ticker)
-- Overall --
-- Value --
Chg.
(%)
3-Month
Revision
(%)
P/E
Ratio
Chg.
(%)
3-Month
Revision
(%)
P/E
Ratio
Stock
(%)
Industry
(%)
Group
Ameriprise Financial
($120; AMP)
92
(61)
66
(62)
20
2
14
12
1
13
4
(3)
Diversified fin'l
Apple ($99; AAPL)
98
(49)
69
(49)
12
0
16
13
5
14
24
(1)
Tech hardware
Capital One Financial
($81; COF)
91
(61)
86
(62)
4
5
11
0
3
10
5
(3)
Diversified fin'l
Hewlett-Packard
($35; HPQ)
93
(49)
92
(49)
5
0
9
6
1
9
23
(1)
Tech hardware
Intel ($34; INTC)
92
(50)
58
(42)
16
7
16
5
8
15
31
7
Semiconductors
Jones Lang LaSalle
($126; JLL)
96
(44)
67
(41)
21
5
16
12
4
15
23
5
Real estate
Lam Research
($73; LRCX)
96
(50)
64
(42)
6
(2)
15
13
(2)
14
33
7
Semiconductors
Lear ($87; LEA)
98
(68)
84
(67)
35
4
11
17
4
9
(7)
2
Autos
Magna Int'l
($96; MGA)
97
(68)
85
(67)
20
4
11
15
4
10
16
2
Autos
ManpowerGroup
($68; MAN)
96
(54)
90
(56)
18
1
13
13
2
12
(20)
(7)
Commercial svcs.
Manulife Fin'l
($19; MFC)
94
(75)
97
(79)
17
(2)
12
17
(1)
10
(4)
(2)
Insurance
MetLife ($52; MET)
93
(75)
97
(79)
(1)
(1)
9
9
(1)
9
(3)
(2)
Insurance
Travelers Cos.
($93; TRV)
97
(75)
97
(79)
(2)
(1)
10
(1)
0
10
3
(2)
Insurance

 


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