Sabrient’s quant models indicate many hopeful signs for an economic recovery to begin sometime during 2009. Valuations are the best we have seen in a long time. Corporate restructuring coupled with Federal government stimulus just might give the U.S. and world economies the firm foundation needed for recovery. This seems like a good time to start nibbling on stocks that are best positioned to compete in their respective markets.
We recently identified a diverse group of 13 stocks that appear particularly well-positioned to perform well. This article presents four of them that are scoring particularly well in our system, represent a diversity of industries, and may not necessarily be household names that you recognize.
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These selections were identified based on a number of quantitative criteria, including the following:
- VCU – “Value Change Up” score is a proprietary Sabrient rank that measures current valuation and forward outlook. It can be considered largely a GARP rank (Growth at a Reasonable Price), and also rewards conservative accounting practices.
- SVS – Sabrient Value Score measures the relationship between a company's stock price and its intrinsic value, as indicated by earnings and balance sheet attributes, with an emphasis on earnings. Also considered are cash flow metrics and fundamental valuation ratios.
- SGS – Sabrient Growth Score reflects a company's historical and projected earnings growth, revenue and sales growth, projected cash flow, analyst activity, and changes in earnings estimates, each over various time periods.
- SMS – Sabrient Momentum Score measures a company's earnings and price momentum, evenly weighted and augmented by group strength, money flow, and relative volume. Core technical factors include current price relative to periodic highs and moving averages.
- 5-yr Projected Annual Growth is the consensus estimate among Wall Street analysts of the next five years earnings growth rate.
- 1-yr Growth Ratio is the ratio of next year’s consensus projected growth rate vs. the current year’s actual growth rate. We look for scores above 1.0.
Here is how the four stocks scored:
Dresser-Rand Group (NYSE: DRC): The Energy sector continues to score well in our forward-looking sector model. Even though oil & gas prices have been hit harder than anyone could have predicted since the incredible summer peaks, oil is here to stay as the key energy source for the foreseeable future, and any increase in demand that accompanies an economic recovery will support oil prices.
DRC is a Houston, TX-based company engaged in the design, manufacture, sale and servicing of turbo and reciprocating compressors, gas and steam turbines, gas expanders and associated control panels. The Company is a global supplier of rotating equipment solutions to the worldwide oil, gas, petrochemical and process industries.
Formerly Buy-rated in the Sabrient system, we moved DRC to Hold just before the energy meltdown in July. But it now looks particularly well-positioned to prosper in a stabilized world economy. Its SVS and SGS are excellent, the 5-year Projected Annual Growth rate is quite high, and the 1-year Growth Ratio is solidly above 1.0. Also, it ranks near the top of our high-performing VCU strategy rank.
Capstead Mortgage (NYSE: CMO): Given the poor condition of our financial system and the risk of further deterioration, you might wonder why we have a pick from the Financials sector. However, the economy cannot recover without at least some stability in the Financial sector in general, and the real estate market in particular.
CMO is a Dallas-based firm that operates as a real estate investment trust. The company invests in real estate-related assets on a leveraged basis that primarily consists of residential adjustable-rate mortgage securities issued and guaranteed by government-sponsored entities. Capstead Mortgage has elected to be treated as a REIT for federal income tax purposes and would not be subject to federal income tax if it distributes at least 90% of its REIT taxable income to its shareholders.
CMO recently was upgraded to Buy in the Sabrient system. It has a notably high VCU score, plus its other scores are sound across the board. It is a relatively safe bet on stabilization in the real estate market, and also offers a fat yield.
Atlas Air Worldwide (Nasdaq: AAWW): Top stocks from the Industrials sector should perform well given any level of economic recovery.
AAWW provides aircraft and outsourced aircraft operating solutions to the air freight industry. It operates in four segments: Aircraft, Crew, Maintenance, and Insurance (ACMI); Scheduled Service; Air Mobility Command (AMC) Charter; and Commercial Charter. The company's customers include airlines, freight forwarders, the U.S. military, and charter brokers, and it operates in Asia, the Middle-East, Australia, Europe, South America, Africa, and North America. It is based in Purchase, New York.
AAWW recently returned to a Buy rating in the Sabrient system. It sports an eye-popping 5-year projected growth rate, along with sound VCU and SVS scores. If the world economy starts to recover, air and sea shippers will benefit, and AAWW looks particularly good.
LDK Solar (NYSE: LDK): The Information Technology sector encompasses Software, Hardware, and Semiconductors. No matter what the economy is doing, entrepreneurs will continue to push the technological boundaries. Our pick in this sector is geared toward both solar energy and China.
LDK engages in the manufacture and sale of multicrystalline solar wafers to the manufacturers of solar cells and solar modules in the People's Republic of China and internationally. It offers multicrystalline solar wafers between 180 and 220 microns in thickness. The company also provides wafer processing services. LDK was founded in 2005 and is headquartered in Xinyu city, the People's Republic of China.
LDK is a play on growth in both solar energy and China. It has been Buy-rated in the Sabrient system since spring of 2008. The stock boasts sound VCU, SVS, and SGS scores, and an eye-popping 5-year projected growth rate.
The four stocks we have identified here should hold up well assuming the economy stabilizes, and should perform very well in a worldwide economic recovery. We think 2009 will begin to see the early stages of a steady economic recovery in both the U.S. and the world.
These are four of Sabrient’s “Baker’s Dozen” Top Stocks for 2009, which is documented in a special report available on our website. The report includes 13 diverse stocks—plus two speculative bonus picks.