ValuEngine’s ratings from 1 (Strong Sell) to 5 (Strong Buy) are based upon our predictive model’s assessment of which stocks will appreciate most in price during the next 12 months on a percentage basis. As such, it will sometimes favor small stocks with a lower base for its highest ratings. Also, since it is price-appreciation focused, it does not take dividend income into account. Today, we use the ValuEngine Advanced Screening tool to select US stocks with at least $10 Billion market cap with predicted 12-month price appreciation of more than 5%, at least a 4 (Buy) rating, at least 2% dividend yield and at least 2% EPS growth. The goal is to select liquid stocks providing a better income yield than the S&P 500 Index and positive earnings growth of at least 2% in an economic environment where many pundits have said that most companies will struggle to deliver positive earnings growth.
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Although this bar might not seem that high, the selected US-domiciled companies had to meet all these criteria. Only four did:
Interpublic Group. (IPG) The Interpublic Group of Companies, Inc. provides advertising and marketing services worldwide. It operates in three segments: Media, Data & Engagement Solutions, Integrated Advertising & Creativity Led Solutions, and Specialized Communications & Experiential Solutions. The Media, Data & Engagement Solutions segment provides media and communications services, digital services and products, advertising and marketing technology, e-commerce services, data management and analytics, strategic consulting, and digital brand experience under the IPG Mediabrands, UM, Initiative, Kinesso, Acxiom, Huge, MRM, and R/GA brand names.. The company was formerly known as McCann-Erickson Incorporated and changed its name to The Interpublic Group of Companies, Inc. in January 1961. The Interpublic Group of Companies, Inc. was founded in 1902 and is headquartered in New York, NY.
Southwest Airlines. (LUV) is a passenger airline that provides short-haul, high frequency, point-to-point and low fare services. The company’s point-to-point route structure includes services to and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore-Washington International and Ft. Lauderdale-Hollywood. The company also offers long-haul nonstop service between markets like Oakland and Orlando, Los Angeles and
Nashville, Houston and New York LaGuardia, San Diego and Newark and many other routes. In addition, the company offers a suite of digital platforms to support customers’ travel needs, including websites and apps; and SWABIZ, an online booking tool. Further, it provides ancillary services, such as Southwest’s EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors. The company was incorporated in 1967 and headquartered in Dallas, TX.
Newmont Corp. (NEM) Newmont Corporation engages in the production and exploration of gold. It also explores for copper, silver, zinc, and lead. The company has operations and/or assets in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana. Newmont’s operating segments are North America, South America, Australia and Africa. The North America segment has operations in Mexico, Canada and in the U.S. The South America segment is represented by operations in Suriname, Peru, Argentina and Dominican Republic. The Australia segment consists of Boddington and Tanami. Newmont fully owns and operates the Tanami mine. The Africa segment operations are represented by the fully-owned Ahafo and Akyem mines in Ghana. As of December 31, 2022, it had proven and probable gold reserves of 96.1 million ounces and land position of 61,500 square kilometers. The company was founded in 1916 and is headquartered in Denver, CO.
Omnicom Corp. (OMC) Omnicom Group Inc., together with its subsidiaries, offers advertising, marketing, and corporate communications services. It provides a range of services in the areas of advertising and media, precision marketing, commerce and brand consulting, experiential, execution and support, public relations, and healthcare. The company’s services include advertising, branding, content marketing, corporate social responsibility consulting, crisis communications, custom publishing, data analytics, database management, digital/direct marketing, digital transformation, entertainment marketing, experiential marketing, field marketing, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, and in-store design services. The company was incorporated in 1944 and is based in New York, NY.
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Since this screen did not yield any 5-rated stocks and was limited to just four very mature companies, I ran it again with the same criteria except one. Minimum Market cap was lowered to $1 Billion rather than $10 Billion. Now, exactly two US-domiciled companies passed all of the criteria and are 5 rated at the time of this writing. They are:
Icahn Enterprises LP (IEP) through its subsidiaries, operates in investment, energy, automotive, food packaging, real estate, home fashion, and pharma businesses in the United States and Internationally. Its Investment segment invests its proprietary capital through various private investment funds. The company’s Energy segment refines and markets transportation fuels; and produces and markets nitrogen fertilizers in the form of urea ammonium nitrate and ammonia. Its Automotive segment is involved in the retail and wholesale distribution of automotive parts; and offers automotive repair and maintenance services. The company’s Food Packaging segment produces and sells cellulosic, fibrous, and plastic casings that are used for preparing processed meat products. Its Real Estate segment is involved in investment properties; construction and sale of single-family homes; and management of a country club. The company’s Home Fashion segment manufactures, sources, markets, distributes, and sells home fashion consumer products. Its Pharma segment offers pharmaceutical products and services. The company was incorporated in 1987 and is headquartered in Sunny Isles Beach, FL.
Safehold Inc. (SAFE) is revolutionizing real estate ownership by providing a new and better way for owners to unlock the value of the land beneath their buildings. Having created the modern ground lease industry in 2017, Safehold continues to help owners of high quality multifamily, office, industrial, hospitality, student housing, life science and mixed-use properties generate higher returns with less risk. The Company, which is taxed as a real estate investment trust (REIT), seeks to deliver safe, growing income and long-term capital appreciation to its shareholders.
The following table presents a look at the data behind these stocks, including the ValuEngine Buy/Hold/Sell rating. The ValuEngine Rating is an overall assessment of a stock’s relative attractiveness. It combines the following five factors: valuation, risk-return tradeoff, momentum, market capitalization, and forecasted future returns. Only two percent of the stock universe receives the highest 5-engine rating (Strong Buy), while the lowest rating is a single engine (Strong Sell).
iShares S&P 500 ETF (IVV), (a more efficient and less expensive ETF than SPY) represents the S&P 500, and is shown as a benchmark for the stocks’ individual data points.
| IPG | NEM | LUV | OMC | IEP | SAFE | IVV | ||
| Stock Name | Interpublic Group | Newmont Mining | Southwest Airlines | Omnicom Corp | Icahn Enterprises | Safehold | S&P 500 ETF | |
| Market Cap, (Bllns.) | 12.45 | 30.36 | 19.15 | 15.79 | 8.2 | 1.28 | 328.78 | |
| ValuEngine Rating | 4 | 4 | 4 | 4 | 5 | 5 | 3 | |
| VE Forecast 3-mo. Price Return | 1.47% | 2.02% | 2.38% | 0.93% | 1.58% | 0.93% | 2.13% | |
| VE Forecast 1-yr. Price Return | 10.00% | 6.45% | 8.35% | 4.32% | 16.81% | 13.17% | -1.48% | |
| Last mo. Price Return | -20.87% | -15.07% | -12.49% | -18.39% | -30.78% | -17.53% | -3.93% | |
| Last 3 mo. Price Return | -15.78% | -11.72% | 7.31% | -15.19% | -35.97% | -25.93% | 4.19% | |
| Last 6 mo. Price Return | -13.41% | -15.90% | -9.08% | -14.74% | -59.06% | -62.88% | 7.22% | |
| Historic 1-Yr. Price Return | 7.69% | -14.45% | -17.52% | 9.14% | -57.33% | -80.64% | 2.01% | |
| Historic 5-Yr Ann. Price Return | 8.35% | 3.14% | -10.64% | 4.13% | -15.98% | -20.21% | 9.70% | |
| Volatility | 29.24% | 34.09% | 37.90% | 27.37% | 47.48% | 51.74% | 19.03% | |
| Sharpe Ratio | 0.29 | 0.09 | -0.28 | 0.15 | -0.34 | -0.39 | 0.51 | |
| Beta | 1.12 | 0.38 | 1.20 | 0.85 | 0.83 | 1.29 | 1.01 | |
| Undervaluation Percentile | 26 | 37 | 27 | 36 | 10 | 4 | 27 | |
| P/B Ratio | 3.32 | 1.74 | 1.95 | 4.31 | 1.28 | 0.61 | 2.70- | |
| P/E Ratio | 11.5 | 24.9 | 32.7 | 11.0 | – | – | 22.16 | |
| P/S Ratio | 1.2 | 2.7 | 0.7 | 1.1 | 0.7 | 5.3 | 16.5 | |
| PEG Ratio | 0.55 | 0.34 | 0.17 | 4.36 | 0.06 | 0.04 | 1.56 | |
| EPS Growth | 20.97% | 72.67% | 196.27% | 2.53% | 156.76% | 143.14% | 12.22%- | |
| Div. Yield | 3.83% | 4.19% | 2.24% | 3.50% | 18.00% | 3.54% | 1.51% |
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
Observations
- The screen shows that the current environment is difficult for conservative investors looking for a decent dividend yield.
- Since only four of more than 600 buy (4 or 5-rated) companies met all the criteria, the adage that comes to mind is “you cannot have your cake, then eat it too.” At least in the current environment, wanting a 2+% yield and finding large/midcap stocks for which ValuEngine models predict above average price performance limits the investors’ choice to IPG, NEM. LUV and OMN. All were at the low end of satisfying the market cap criteria with only Newmont Mining having a market Cap above $20 Billion.
- All four have been around more than 50 years and in one case, more than 100 years. The good news is that they are relatively stable companies with strong brand recognition. The downside is that the traditional advertising agency paradigm has had to transition to compete with new technologies and new ad spending paradigms. So, even though IPG and OMN are predicted by the ValuEngine model to outperform the market over the next six-to-12 months, their long-term futures are difficult to predict. On the positive side, The traditional valuation ratios for IPG and OMN are very low.
- The 5-rated stocks that passed the screens with the lower market cap threshold are quite different in nature. IEP, Icahn Enterprises, is a diversified holding company for many businesses, mostly in non-traditional financing and real estate. SAFE is an innovatively designed Real Estate Investment Trust (REIT). The current dividend yield of 18% for IEP is unlikely to be sustainable. EPS Growth for both is projected to be high so they both have terrific PEG ratios. As a non-traditional financing yield designed to abate risk, SAFE is worthy of further investigation. IEP is much less transparent by design and is definitely not a stock I’d recommend to conservative investors.
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By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
www.ValuEngine.com
support@ValuEngine.com
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