Now's The Time To Use Quadrix

8/22/2011


Don't know what the market holds? Don't worry, Quadrix can help you whether stocks rise or fall.

In rolling 12-month periods since 1990, the top one-fifth of Quadrix Overall scorers in the S&P 500 Index outperformed the average stock by 2.7% when the market was up and 2.8% when the market was down. During stronger moves — when the market rose or fell more than 15% in 12 months — the Overall score worked consistently, though it did better in up markets.

OVERALL, VALUE WORK IN ALL KINDS OF MARKETS
While top Quadrix Overall scorers have tended to outperform during both up and down markets, the same is not true for all Quadrix category scores. During down markets, Value has been the only category score that has worked. In contrast, most category scores have worked well when stocks were on the rise. These numbers suggest investors should always keep an eye on the Overall and Value scores.
Average Outperformance of Top One-Fifth
---------------- Versus Average S&P 500 Stock ----------------
Overall
(%)
Momen-
tum
(%)
Value
(%)
Quality
(%)
Fin'l
Str.
(%)
Earns.
Ests.
(%)
Perfor-
mance
(%)
During all periods
2.7
0.8
3.6
0.4
0.5
(3.6)
1.3
During periods when the index was up over 12 months
2.7
2.1
3.4
1.5
1.2
1.1
2.4
During periods when the index was down over 12 months
2.8
(4.2)
4.2
(3.8)
(2.0)
(9.3)
(3.0)
During periods when the index rose more than 15% in 12 months
3.0
1.9
3.8
3.2
2.1
0.0
1.1
During periods when the index
fell more than 15% in 12 months
1.9
(3.3)
2.8
(4.5)
(1.2)
(11.4)
(0.1)
Note: Data on the Earnings Estimates score goes back only to 2004.

During periods when the index rose over 12 months, all six category scores worked. Value and Quality worked particularly well in big market advances. The Value score was the most effective category score in all types of markets, but most of the category scores worked when stocks were rising. During down markets, Value was the only category score with predictive power. However, the poor performance of top scorers in the other categories did not prevent high Overall scorers from delivering above-average returns in down markets.

Of course, it's impossible to know whether the market will rise or fall over the next 12 months. So, we also looked at Quadrix's effectiveness after upward and downward moves, something an investor could know. We found that while the Overall score worked after both up and down moves, it performed better after periods when the S&P 500 rose.

Limiting our observations to 12-month periods after a six-month rise in the index, the top Overall scorers outperformed by an average of 2.9%. Require 12 months of market gains before the holding periods, and outperformance rises to 3.4%.

The top one-fifth of Overall scorers among S&P 500 stocks averaged 12-month returns of 16.6% after 12-month periods when the index rose, versus 13.2% for all S&P 500 stocks in such periods. Momentum, Value, Quality, Financial Strength, and Performance scores all tended to work after 12-month gains in the index.

After periods when the index was down over the last six months, high Overall scorers managed 2.3% outperformance. The numbers don't look as good after longer periods of market weakness — Overall delivered outperformance of just 0.3% after the index was down over 12 months.

The S&P 500 Index has gained 6% over the last 12 months and lost 14% over the last six months. Conveniently, stocks with high Overall scores or high Value scores have tended to outperform under such conditions. The table below lists 24 A-rated stocks that score well in both Overall and Value. The three reviewed in the following paragraphs seem capable of outperforming the market over the next year, regardless of whether the market moves up or down.

Abbott Laboratories' ($50; ABT) Overall score of 95 ranks it near the top 5% of our research universe, and the drugmaker's yield of 3.8% ranks among the top 15%. Abbott churns out steady growth, with both sales and per-share earnings expanding in six consecutive years. For both measures, Abbott has delivered annualized growth in excess of 9% over the past five years.

That momentum stretched into the first half of 2011, as per-share earnings climbed 12% and sales 13%. Two primary factors are driving growth.

• The international drug unit (34% of total sales in the six months ended June) grew revenue 22% as Abbott continued to make niche acquisitions in emerging markets.

• In the U.S., sales of Humira (20%) climbed 22%, as the blockbuster drug snatched market share from rivals. Humira is used to fight diseases that attack the body's immune system, most notably rheumatoid arthritis.

Some analysts worry that one of Pfizer's ($18; PFE) experimental drugs could challenge Humira's dominance before its patent expires in 2016. Nevertheless, Wall Street's long-term earnings outlook for Abbott — targeting average growth of 9% over the next five years — exceeds the forecasts for its largest U.S. rivals. Yet Abbott's trailing price/earnings ratio of 11 falls in line with the pharmaceutical average. Abbott Labs, which tends to outperform in down markets, is a Long-Term Buy.


BASF ($78; BASFY) has grown sales at an annualized rate of 12% and earnings at 18% over the last five years. Known for its plastics, fertilizers, and additives, BASF continues to find new geographic markets for its broad product portfolio. About 27% of 2010 revenue came from emerging markets, up from 22% in 2005.

In July, BASF backed its 2011 profit guidance but cautioned that it sees slower growth in the second half of the year as pent-up demand begins to ease and the debt crises in Europe and the U.S. threaten to derail the recovery. High prices for oil and raw materials have also pressured profit margins, though BASF has been able to pass most of those costs on to its customers.

BASF has a solid balance sheet. But long-term debt represents more than 30% of total capital, so troubles in the European bond market could limit BASF's financing options. The stock is down 4% this year and trades at 10 times expected current-year earnings, versus an average of 11 for diversified-chemical companies in the S&P 1500 Index. At roughly eight times the 2012 consensus, shares trade about 15% below U.S. peers. The dividend, paid annually in April or May, has grown at an annualized rate of 16% over the past decade. Earning an Overall score of 96 and Value score of 89, BASF is a Long-Term Buy.


DirecTV ($44; DTV) boasts outstanding growth trends, with revenue climbing 12% in the past year and per-share earnings soaring 51%. Cash provided by operations rose 31% in the June quarter — the 15th consecutive year-to-year increase. The stock has risen 11% so far this year, not enough to keep up with profit growth. The trailing P/E is 14, near its lowest point in six years. The stock also trades at substantial discounts to historical norms based on price/sales and price/cash flow ratios.

An increasingly competitive environment sapped DirecTV's U.S. subscriber growth in the June quarter as phone and cable companies slashed prices and bundled pay-TV services with broadband Internet offerings. Latin America is DirecTV's most attractive growth market, with revenue per user up 13% in the first half of 2011 and net subscriber additions up 41% to 899,000.

Potentially seeking to bolster its U.S. business, DirecTV confirmed its interest in Hulu, an online video service that has attracted multiple potential acquirers since putting itself up for sale.

Per-share profits are projected to jump 35% to $3.35 this year. Yet the stock trades at roughly 13 times estimated earnings, slightly below the average for cable and satellite stocks in the S&P 1500 Index. The Overall score of 98 is supported by DirecTV's broad strength in Quadrix, where all six category scores rank in the top half of our research universe. Earning a Value score of 76 and a Quality score of 97, DirecTV is a Focus List Buy and a Long-Term Buy.

OVERALL, VALUE LEADERS
The 24 A-rated stocks below earn Quadrix Value and Overall scores of 75 or higher. Based on P/E ratio, most trade at a discount versus peers and their own five-year average. Since 1990, high Overall or Value scorers have tended to outperform following both up and down moves in the market. Value selections have done particularly well after the market was down over the previous six months. As of Aug. 17, the index had gained 6% over the past 12 months and lost 14% over the last six months. Stocks recommended for purchase are presented in bold.
Stock-
Market
Value
($Bil.)
5-Yr. Annual.
Growth
Price/Earnings Ratio
Quadrix
Scores
Company (Price; Ticker)
Div.
Yield
(%)
Sales
(%)
EPS
(%)
Trailing
Vs.
Industry
Average
Vs. 5-Yr.
Average
Value
Overall
Industry
Abbott Labs
($50; ABT)
3.8
78.4
11
12
11
0.61
0.71
76
95
Pharmaceuticals
Adobe Systems
($25; ADBE)
0.0
12.5
12
14
11
0.35
0.36
86
95
Systems software
Advance Auto Parts
($56; AAP)
0.4
4.3
6
15
13
0.68
0.81
81
78
Specialty stores
Agilent Tech.
($37; A)
0.0
13.1
5
22
13
0.72
0.54
78
96
Electronic
equipment
Applied Materials
($12; AMAT)
2.7
15.6
8
11
8
0.77
0.48
92
95
Semiconductor
equipment
BASF ($78; BASFY)
3.0
71.4
12
19
8
0.65
0.59
89
96
Diversified chemicals
Capital One Fin'l
($45; COF)
0.4
20.6
6
0
6
0.46
0.48
94
82
Consumer finance
Chevron
($98; CVX)
3.2
197.2
1
9
9
0.66
0.90
83
98
Integrated oil & gas
Comcast
($21; CMCSa)
2.1
59.2
16
32
15
0.83
0.57
81
96
Broadcasting/cable TV
ConocoPhillips
($67; COP)
4.0
94.0
3
(7)
9
0.72
1.02
84
84
Integrated oil & gas
Dell ($16; DELL)
0.0
29.6
1
7
8
0.45
0.53
93
98
Computer hardware
DirecTV ($44; DTV)
0.0
33.7
13
35
14
0.82
0.71
76
98
Broadcasting/cable TV
Exxon Mobil
($74; XOM)
2.6
361.0
3
5
10
0.74
0.81
87
89
Integrated oil & gas
Freeport-McMoRan
($46; FCX)
2.2
44.0
35
14
8
0.40
0.81
90
97
Divers. metals mining
General Dynamics
($62; GD)
3.0
23.0
7
13
9
0.52
0.67
89
90
Aerospace & defense
Gilead Sciences
($39; GILD)
0.0
31.1
26
28
10
0.52
0.50
87
93
Biotechnology
Microsoft
($25; MSFT)
2.5
216.0
10
16
9
0.30
0.61
86
99
Systems software
Nippon Telegraph
($24; NTT)
2.8
62.8
7
11
10
0.35
0.75
90
94
Integrated
telecom svcs.
UnitedHealth Group
($46; UNH)
1.4
49.8
11
12
10
0.90
0.89
78
92
Managed health care
Valero Energy
($12; VLO)
1.0
12.0
1
(22)
7
0.59
0.75
97
87
Oil & gas
refining & mktg.
Volkswagen
($31; VLKAY)
1.5
46.0
11
58
7
0.49
0.47
99
100
Auto manufacturers
Wal-Mart Stores
($52; WMT)
2.8
180.9
6
9
12
0.73
0.78
77
79
General merchandise
Walter Energy
($82; WLT)
0.6
5.2
12
23
10
0.51
0.53
90
90
Divers. metals mining
WellPoint
($62; WLP)
1.6
23.1
3
12
9
0.77
0.75
92
83
Managed health care
Note: Quadrix scores are percentile ranks, with 100 the best.

 


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