Looking at this week’s list of stocks rated 5 (Strong Buy) from ValuEngine for year-ahead performance, I note that there are a number of relatively well-known large cap and midcap stocks that meet my minimum criteria as appropriate for conservative institutional-quality portfolios. As we will see, all five are in popular large cap and midcap indexes.
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These criteria include:
- Min. 3 years of history
- Market Cap > $10 Million;
- Price per Share > $5.00
- Must Pay a Dividend
- Annualized Volatility <= 50%
- Beta <=1.09
- EPS Growth > 5%
The major reasons for all of the above are relative stability, quality EPS growth and sufficient liquidity for institutional portfolios of up to $1 Billion.
The five stocks meeting all of the above criteria and being reviewed today are:
ADP – Automatic Data Processing, Inc. provides cloud-based human capital management solutions worldwide. It operates in two segments, Employer Services and Professional Employer Organization (PEO). The company was founded in 1949 and is headquartered in Roseland, New Jersey.
HUM – Humana Inc. operates as a health and well-being company in the United States. It operates through three segments: Retail, Group and Specialty, and Healthcare Services. The company offers medical and supplemental benefit plans to individuals. As of December 31, 2021, the company had approximately 17 million members in medical benefit plans, as well as approximately 5 million members in specialty products. Humana Inc. was founded in 1961 and is headquartered in Louisville, Kentucky.
ROL – Rollins, Inc., through its subsidiaries, provides pest and wildlife control services to residential and commercial customers in the United States and internationally. In addition, the company offers traditional and baiting termite protection, as well as ancillary services. It was incorporated in 1948 and is headquartered in Atlanta, Georgia.
RPM – RPM International Inc. manufactures, markets, and sells specialty chemicals for the industrial, specialty, and consumer markets worldwide. It offers waterproofing, coating, and institutional roofing systems; sealants, air barriers, tapes, and foams; residential home weatherization systems; roofing and building maintenance services; sealing and bonding, subfloor preparation, flooring, and glazing solutions; resin flooring systems, polyurethane, MMA waterproof, epoxy floor paint and coatings, concrete repair, and protection products alongside many specialty chemical-derived product lines. The company was incorporated in 1947 and is headquartered in Medina, Ohio.
TTC – The Toro Company provides innovative solutions for the outdoor environment worldwide. It operates through two segments, Professional and Residential. The company’s Professional segment offers turf and landscape equipment products.
The table below provides summary info for the five stocks and the ETF with ticker symbol SPY to represent the S&P 500 for comparison. All data is as of January 28, 2023. More comprehensive analysis can be found by pulling up the underlying ValuEngine reports.
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
| ADP | HUM | ROL | RPM | TTC | SPY | |
| Automatic Data Processing, Inc. | Humana, Inc. | Rollins, Inc. | RPM Intl., Inc. | Toro, Inc. | S&P 500 SPDR Trust | |
| VE Rating | 5 | 5 | 5 | 5 | 5 | 3 |
| Sector Name | Business Services | Medical | Business Services | Construction | Consumer Discretionary | Large Cap US Stock Market |
| Market Cap. ($Bil.) | 91.6 | 61.0 | 17.7 | 11.4 | 11.4 | 380.6 |
| VE Forecast 3-mo. Price Return | +3.13% | +2.96% | +2.04% | +1.35% | +2.68% | +1.35% |
| VE Forecast 6-Mo. Price Return | +3.57% | +3.05% | +0.87% | +1.57% | +2.23% | +3.29% |
| VE Forecast 1-yr. Price Return | +14.94% | +13.33% | +13.75% | +13.40% | +13.47% | +0.10% |
| Last mo. Price Return | –8.39% | -6.36% | -2.70% | -11.57% | -4.30% | +6.37% |
| Last 3 mo. Price Return | -6.03% | -11.54% | -12.19% | -5.22% | +5.51% | +6.76% |
| Last 6 mo. Price Return | -5.66% | +0.70% | +1.87% | +0.74% | +30.49% | +1.16% |
| Historic 1-Yr. Price Return | +12.41% | +25.75% | +24.34% | +1.22% | +16.64% | -9.95% |
| Historic 5-Yr Ann. Price Return | +14.24% | +14.50% | +11.38% | +12.40% | +11.02% | +9.00% |
| Volatility | 23.2% | 26.6% | 26.0% | 26.3% | 23.5% | 18.9% |
| Low Volatility Percentile | 70 | 64 | 65 | 65 | 70 | 80 |
| Sharpe Ratio | 0.61 | 0.54 | 0.44 | 0.47 | 0.11 | 0.38 |
| Beta | 0.87 | 0.73 | 0.64 | 0.97 | 0.74 | 1.00 |
| EPS Growth | 12.9% | 11.6% | 8.2% | 10.1% | 15.9% | 7.4% |
| VE Model Undervaluation Percentile | 51 | 51 | 78 | 53 | 56 | 22* |
| Div. Yield | 2.3% | 0.7% | 1.4% | 1.9% | 1.2% | 1.6% |
| P/B Ratio | 2.6 | 8.5 | 14.8 | 67.4 | 62.7 | 4.4 |
| Current P/E Ratio | 29.3 | 19.2 | 49.3 | 20.3 | 25.1 | 21.8 |
| Forward P/E Ratio | 26.0 | 17.2 | 46.0 | 18.4 | 21.7 | 17.3 |
| P/S Ratio | 5.4 | 0.7 | 6.7 | 1.6 | 2.5 | 3.0 |
| PEG Ratio | 2.3 | 1.7 | 6.0 | 2.0 | 1.6 | 2.6 |
* ETF Undervaluation # is the percentage of undervalued stocks, not a comparison with all other ETFs in our universe in the first 9 months of 2022
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
Analysis
- Automatic Data Processing (ADP) and Humana (HUM) are large cap stocks and are included in the S&P 500 Index while the other three, Rollins (ROL), RPM (RPM) and Toro (TTC) with market capitalization between 10 and 20 billion dollars are all part of the S&P MidCap 400 and/or the large/mid Russell 1000.
- All five of the Strong Buy stocks outperformed the S&P 500 by a wide margin during the past 12 months and are projected by VE models to do so during the next 12 months. None of them, however, outperformed during the past one- month and 3-month periods. In fact, only Toro Inc. (TTC) managed a positive price change during the past three months while SPY, the S&P 500 ETF, recouped 6.7% of the more than 20% it had lost in the first 9 months of 2022.
- Of the five stocks selected for this piece, ADP garnered ValuEngine’s predictive model’s highest expectations. The nation’s standard for payroll services, ADP swept the projection categories with top numbers for 3-, 6- and 12-month ahead performance. As a bonus, ADP has the highest dividend yield, lowest volatility and the lowest price-to-book ratio as well.
- All five stocks are considered relatively undervalued relative to the ValuEngine universe by the firm’s valuation model. By traditional valuation methods, HUM is the most attractive by both current and forward price-to-earnings ratios and on the basis of current price-to-book ratio. Relative to earnings growth, however, Toro (TTC) has the best PEG (price-to-earnings growth) ratio and the highest earnings growth in the sample as well. While not as strong as HUM or ADP, RPM also looks very attractive on most of the valuation ratios other than price-to-book; it also has the second highest yield in the set. Rollins is the top choice of our valuation model but appears overpriced by most traditional measures.
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Conclusion
With relatively low volatilities and Betas accompanied by Strong Buy scores, these five relatively conservative stocks seem to be attractive in many ways. Consider that most prognosticators are still expecting a recession on 2023, these relatively recession-proof stocks may offer investors a fair amount of downside resistance and a good amount of upside via earnings growth, There is still no substitute for performing your own due diligence but this list seems to have some candidates worthy of investigation.
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By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
www.ValuEngine.com
support@ValuEngine.com
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