Those of you who follow ValuEngine’s weekly lists of top-rated, (5 rated on scale of 1 to 5), Strong Buy stocks may have noticed that most of these stocks tend to be in the lower half of the market cap spectrum. This is a function of the fact that our scores are tied to our predictions for year-ahead percentage price change and simple mathematics. Simply put, it is more common for a stock with $10 billion dollar market capitalization to go to $100 billion (a 900% increase) than it is for a $300 billion solar stock to become a $3 trillion stock. There is only so much new money that can be invested in a stock. Simply put, a lot more new information can come into the market – and thus increase its price – for the stock of a virtually unknown company than the stock of a well-known company that has been priced by the dollar-weighted views of all investors in the market. The converse of this is that most $10 billion dollar stocks do not ever catch “lightning in a bottle” for such huge growth as the above example, and are much more likely to be the stocks of companies that will eventually fail before becoming large enough for institutional investors to consider.
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The above paragraph is merely an information prelude to this week’s article. Often the most attractive stocks in the S&P 500 will be rated 4 (Buy) out of 5 by ValuEngine rather than five because of the above phenomenon. There are more than 3 times as many 4-rated stocks than there are 5- rated stocks and these still represent above-average buying opportunities.
Using ValuEngine’s advanced screening tool, we can select 4 and 5 rated companies limited to stocks in the SPY ETF that is based upon the S&P 500 Index. As we can see in the table below, 20 stocks passed the screen with two strong buys; CEG and NCLH.
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
Ticker |
Market Price |
Rating |
Forecast 1-Yr Price Gain(%) |
Market Cap ($ Billions) |
Lower Volatility Rank |
Beta | P/S Ratio |
Valuation Model Rank |
|
| CEG | 78.80 | 5 | 16.0 | 25.8 | 47 | 0.67 | 1.1 | 75 | |
| NCLH | 16.32 | 5 | 13.2 | 6.9 | 21 | 2.86 | 1.4 | 89 | |
| ALL | 127.60 | 4 | 10.7 | 33.8 | 73 | 0.59 | 0.7 | 57 | |
| INCY | 75.85 | 4 | 10.2 | 16.9 | 56 | 0.67 | 5.0 | 44 | |
| AAL | 16.12 | 4 | 9.7 | 10.5 | 39 | 1.66 | 0.2 | 87 | |
| ALK | 47.90 | 4 | 9.5 | 6.1 | 43 | 1.63 | 0.6 | 74 | |
| EPAM | 310.34 | 4 | 9.0 | 17.8 | 34 | 1.63 | 3.7 | 50 | |
| LNC | 30.33 | 4 | 8.7 | 5.1 | 39 | 1.84 | 0.3 | 75 | |
| DAL | 38.46 | 4 | 8.7 | 24.7 | 44 | 1.35 | 0.5 | 76 | |
| LUV | 33.76 | 4 | 8.5 | 20.0 | 49 | 1.19 | 0.8 | 77 | |
| PAYC | 292.73 | 4 | 8.3 | 17.6 | 41 | 1.39 | 12.8 | 79 | |
| CCL | 11.07 | 4 | 8.1 | 12.3 | 27 | 2.50 | 1.0 | 91 | |
| CDAY | 74.47 | 4 | 8.0 | 11.3 | 45 | 1.49 | 9.1 | 22 | |
| CMG | 1505.13 | 4 | 7.4 | 41.7 | 52 | 1.25 | 4.8 | 48 | |
| NFLX | 312.03 | 4 | 7.1 | 139.0 | 40 | 1.33 | 4.4 | 84 | |
| UAL | 52.44 | 4 | 7.1 | 17.1 | 38 | 1.56 | 0.4 | 80 | |
| LVS | 59.94 | 4 | 6.6 | 45.8 | 48 | 1.18 | 11.1 | 10 | |
| ETSY | 118.78 | 4 | 6.2 | 14.9 | 30 | 1.86 | 5.8 | 72 | |
| TJX | 78.25 | 4 | 5.4 | 90.4 | 65 | 0.90 | 1.8 | 74 | |
| LUMN | 3.30 | 4 | 4.9 | 3.4 | 44 | 1.10 | 0.2 | 94 |
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
The table above is sorted by projected year-ahead price gain percentage according to ValuEngine’s predictive model. Beyond this column and the ranks, the table contains 4 additional informational columns:
- Lower Volatility Rank
- Beta
- Price/Sales Ratio
- VE Valuation Model Rank.
The first two of the four measures listed above pertain to price volatility. The last two columns are measures of valuation. I chose price-to-sales over P/E and P/B as being subject to the least amount of accounting data manipulation. Others may prefer either of the other two. The VE valuation model considers how much an investor is paying for the stock with respect to expected future earnings and price gains and other factors.
For investment professionals with access to the system, the screener output contains many more data columns. The ValuEngine company reports supply all of this information and even more including company descriptions, many standard and non-standard universe ratios, balance sheet and income statement items.
Analysis
For reasons mentioned in the opening paragraph, although subject to the prevailing economic and technical market environments, the top-rated stocks tend to have above-average price volatility. This is shown with the exceptional high volatility and beta of the second highest rank stock, NCLH, Norwegian Cruise Line. While common, this is by no means universal. Allstate, ALL, is the least volatile of the stocks in the table. The highest-ranked stock by market capitalization is Netflix, NFLX. The most undervalued stock Is Lumen Technologies, LUMN. Lumen is also the smallest market cap company in the table.
Although they are very volatile, there are seven Travel and Leisure related stocks in the list. Six also score well in our valuation model and have low price/sales ratios. These include: Norwegian Cruise Line (NCLH), American Airlines (AAL), Carnival Cruise Lines (CCL), Delta Air Lines (DAL), Southwest Air (LUV) and United Airlines (UAL). Las Vegas Sands (LVS) is the 7th T&L stock on the list, but it is overpriced according to our valuation model and its ratios.
Although they are characterized as Internet/Software, Netflix (NFLX) and Etsy, Inc. (ETSY) could arguably be called leisure companies also. So, nearly nine of our model’s most attractive company stocks are related in one way or another to travel and leisure. This may indicate that the pent-up demand for activities from Covid restraints in 2020 and 2021 has not yet been satisfied.
Given this week’s theme, I did not include my usual ETF benchmarks for comparison. Instead, I include an event note about the industry’s ETF.com awards dinner.
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Event Note
For any follower who missed it, the nominations for the etf.com Awards 2023 are now finalized and in the hands of an illustrious panel of judges. The dinner announcing the winners will be on May 2, 2023 and is institutionally priced at $365 per ticket at the sumptuous Tribecca Rooftop in New York City.
Many of us who cannot attend will be there in spirit. The next day, May 3, we will read the judges decisions with great interest. Of special interest to yours truly is the Lifetime Achievement Award awash with nominees I know well and who have contributed a great deal to shaping the success of the ETF industry from the very beginning. The group includes: Jay Baker; Joanne Hill; Jan van Eck; Anna Paglia and Anthony Rochte.
The most prestigious ETF category is the:ETF of the Year award.
It is awarded to the ETF that has done the most to improve investor opportunities and outcomes in 2022 by providing access to interesting areas of the market, lowering costs, delivering new exposures or otherwise creating better results for investors.
2023 Nominees
AXS Astoria Inflation Sensitive ETF (PPI)
Amplify CWP Enhanced Dividend Income ETF (DIVO)
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
JPMorgan Equity Premium Income ETF (JEPI)
Pacer ETFs U.S. Cash Cows 100 ETF (COWZ)
Schwab U.S. Dividend Equity ETF (SCHD).
In the interest of disclosure, I personally hold positions in SCHD and JEPI. I’ve also noted in my blog how well COWZ fared in this environment. Congratulations to all the nominees!
For those interested in perusing the lists of nominees, the hyperlink to the page is: https://awards.etf.com/
_______________________________________________________________________________
By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
www.ValuEngine.com
support@ValuEngine.com
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