What can you buy in this crazy market? Market Beating Stocks.com created a proprietary stock screen called "MAV": Momentum And Value. We use the MAV screen to search stocks that have shown strong price momentum over the past three months, a proxy we use for identifying high investor demand. But value is just as critical as momentum in today's market where fear and volatility still rule the roost.
Value stocks are more reasonably priced and offer more protection in a volatile market with sharp downward moves. After selecting the stocks with the highest momentum, we then rank our selections based on those stocks that carry the strongest value indicators. Our "value rankings" evaluate a number of criteria including PE multiples, price to sales ratios, relative industry comparisons, and growth rates. Once ranked, our last consideration is the stock's recent chart action to ensure the timing is right and that recent price movements represent good "buying" opportunities.
What are the Momentum And Value stocks that currently show on our screen? Gentiva Health Services (NASDAQ:GTIV) and Fresh Del Monte Produce (NYSE:FDP) are both good defensive plays that have shown strong momentum over the past three months. Both stocks should hold up well in the current market - that is, as long as there isn't another market meltdown. Let's review each stock briefly.
Gentiva Health Services (GTIV) provides home health services throughout the United States. The company operates in three business segments: Home Health, CareCentrix, and other related services that include hospice, respiration therapy, medical equipment, and infusion therapy. The home health segment operates out of 300 locations in 36 states, including a large network of third-party provider locations across all 50 states.
CareCentrix manages home health care services for managed care organizations nationwide. GTIV has been experiencing strong demand for its services, and at the same time management has been improving cost controls. GTIV recently sold a 69% stake in its CareCentrix unit raising capital that will likely be allocated towards the faster growing home healthcare business. However, revenue in 2009 may be pressured as a result of the CareCentrix divestment, but that pressure should be more than offset by GTIV's aggressive acquisition strategy, at least over the long term.
In today's volatile market, the best defense is value stocks that remain reasonably priced and GTIV fits that bill. Gentiva carries a trailing twelve month PE of 5.2, which is lower than 88% of the companies in healthcare facilities, clearly a reflection of the favorable cost structure of home healthcare. But GTIV has also maintained strong operating margins that have resulted in a return on equity better than 95% of their competitors. Also, the company announced positive earnings surprises over the past two quarters that prompted favorable reactions from both analysts and investors.
Long term, aging demographics will clearly benefit this industry. In addition, the industry focus to contain Healthcare costs will certainly grow as the government continues to apply pressure, but long term that pressure may intensify as transparency over medical expenses improves and consumers share a larger burden of those expenses. The home health industry and GTIV will certainly benefit from movements to reduce cost as their services represent a lower cost alternative. Now is a good time to buy as the stock price has been consolidating in the $26 to $26.50 range over the month of December.
Fresh Del Monte Produce (FDP) is a vertically integrated producer, marketer, and distributor of fresh fruit and vegetables, as well as a producer and distributor of prepared fruit and vegetables, juices, beverages, and snacks. The company runs a global business that sources and distributes products worldwide under the Del Monte brand.
FDP has shown very strong price performance relative to the market over the past two months as a result of increased accumulation from investor demand. The company has had phenomenal earnings growth of 80% over the past twelve months which ranks them at the top of their industry. We would certainly expect earnings growth to moderate over the next year, but would add that the company has a strong record of earnings surprises after exceeding expectations over seven of the last eight quarters. The company's PE at 9 is now very low after having dropped precipitously from 2007 levels, certainly in part due to the strong earnings growth.
Overall, we think Del Monte is very well run as the company manages expenses better than most as evidenced by better than average profit margins. Their success with managing expense is even more significant after accounting for the fact this is a business that starts with traditionally tight gross margins. The payoff is a Return on Equity of 12.5% that is better than 85% of their industry competitors. Del Monte stock is still a defensive play in what is still a volatile and shaky stock market. We think FDP is a good buy at $23 or lower. Now is a good time to buy as the stock price has been consolidating between $22 and $24 since the beginning of December.
Disclosure: Market Beating Stocks currently holds long positions in GTIV and FDP.