Seeking The Best Among The Best

9/5/2011


A stock’s environment can have a big effect on its movement. By evaluating a stock relative to its peers, investors can spot potential headwinds and identify stocks with built-in advantages.

Share prices can move on company-specific information, but they also rise and fall based on news they cannot control. Whether it’s DirecTV ($44; DTV) slipping when its cable rivals report declining subscriber growth or Exxon Mobil ($74; XOM) riding along with changes in the price of crude oil, stocks have a tendency to run with their own pack.

Our Quadrix research universe tracks 140 industries that contain at least five stocks. We considered the average Quadrix scores (reflecting fundamentals) and total returns for each of these groups. In sifting through the data, we uncovered some interesting trends.

• Just 27 of the 140 industries have generated positive total returns this year. Those 27 industries average Overall scores of 52, with Quality scores of 56 and Value scores of 48.

• The 23 industries that have lost 20% or more this year average Overall scores of just 43, with Quality of 45. Yet the price weakness has not translated into especially attractive valuations, as evidenced by an average Value score of 52.

The two facts above suggest that investors should not rush to buy companies that have bucked the bear market — unless they also boast impressive fundamentals. Nor should investors flock to the biggest losers. When you bottom-fish with a big net, you tend to haul in a pretty nasty-looking catch.

As always, the Forecasts advises investors to focus on high-quality stocks, such as those with strong Overall scores. You may have better luck finding such stocks in industries with high average Overall scores, including the 22 listed in the linked table.

Advance Auto Parts ($60; AAP) and AutoZone ($309; AZN) rank sixth and eighth, respectively, among their 18-stock industry as measured by Overall score. AutoZone managed sales and per-share-profit growth in each of the last 16 quarters, while Advance Auto managed 15 out of 16, reflecting fairly consistent demand for parts from Americans holding onto their cars longer.

At less than 14 times trailing earnings, Advance Auto trades at a 12% discount to its five-year average and a 22% discount to its sector average P/E ratio. Wall Street expects per-share profits to rise 19% this year and 13% next year.

AutoZone should deliver even faster growth, with per-share profits up 28% in fiscal 2011 ended August and 15% in fiscal 2012. The company has exceeded consensus profit estimates in each of the last four quarters, averaging a positive surprise of 7%. AutoZone is a Buy and a Long-Term Buy. Advance Auto is a Long-Term Buy.

For details on all of our industry groups, check out the Industry Group Studies report.

TOP STOCKS IN TOP INDUSTRIES
All 22 of the stocks listed below hail from industries that rank among the top 15 as measured by average Qudrix Overall score. These companies qualify as leaders among their peers, all ranking in the top half their industry based on Overall score, while also earning strong sector-specific scores. Stocks listed in bold green are recommended for purchase in the Forecasts, while those in bold are recommended by our sister newsletter, Upside, which focuses on small-capitalization stocks. The remaining stocks earn A (above average) ratings in our Monitored List.
Stock-
Market
Value
($Mil.)
Quadrix Scores
Rank in Industry
On Overall Score (No. of
Companies)
Company (Price; Ticker)
Momen-
tum
Value
Quality
Overall
12-
Factor
Sector
Reranked
Overall
Industry
Advance Auto Parts
($60; AAP)
4,676
47
69
87
85
75
73
6
(18)
Retail — automotive
Aflac ($37; AFL)
17,343
63
98
69
93
93
98
4
(26)
Insurance —
life & health
American Express
($49; AXP)
58,246
74
63
66
81
91
83
9
(22)
Consumer
finance
Applied Materials
($11; AMAT)
15,189
75
95
87
95
85
92
10
(47)
Semiconductor
equipment
AutoZone
($309; AZO)
13,253
83
37
94
84
72
81
8
(18)
Retail — automotive
BASF
($69; BASFY)
63,666
91
90
92
96
70
80
2
(15)
Chemicals —
diversified
Cabot ($34; CBT)
2,242
65
86
72
89
82
93
6
(15)
Chemicals —
diversified
Capital One Financial
($45; COF)
20,970
54
93
49
81
92
95
10
(22)
Consumer finance
Cash America Int’l
($57; CSH)
1,823
90
65
84
97
100
97
3
(22)
Consumer finance
CF Industries
($190; CF)
13,702
99
74
97
100
100
100
1
(13)
Chemicals —
agricultural
Chevron ($98; CVX)
197,685
90
81
75
98
98
96
2
(24)
Oil & gas —
integrated
Comcast
($21; CMCSa)
59,461
76
82
83
94
73
88
3
(16)
Cable & satellite
DirecTV ($44; DTV)
33,579
88
75
97
97
83
99
1
(16)
Cable & satellite
DuPont ($48; DD)
45,519
77
62
71
85
73
82
7
(15)
Chemicals —
diversified
Exxon Mobil
($74; XOM)
363,046
77
84
72
91
67
92
11
(24)
Oil & gas —
integrated
EZCORP ($34; EZPW)
1,707
88
49
97
96
98
87
5
(22)
Consumer finance
FBL Financial
($29; FFG)
917
90
93
69
99
96
100
1
(26)
Insurance —
life & health
HealthSpring
($39; HS)
2,672
83
74
93
97
98
96
4
(16)
Health care —
mgd. care
LTX-Credence
($7; LTXC)
333
81
97
91
98
84
93
7
(47)
Semiconductor
equipment
Metropolitan Health
($5; MDF)
220
73
80
96
98
99
98
2
(16)
Health care —
mgd. care
UnitedHealth Group
($47; UNH)
51,724
57
74
87
92
96
91
6
(16)
Health care —
mgd. care
World Acceptance
($65; WRLD)
1,038
77
68
93
97
97
98
2
(22)
Consumer finance
Note: Quadrix scores are percential 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