Seeking Alpha
, Portfolio123 (2,329 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

In my previous posts (here, here and here), I decided to rank all the energy stocks, the technology stocks and the industrial stocks by the sum of their dividend and earnings yield. In this article, I have done the same for all consumer discretionary stocks, which are included in the Russell 3000 index.

I used the Portfolio123's powerful ranking system to grade all consumer discretionary stocks based on this theme. Only stocks with a market cap greater than $100 million and price greater than $1.00 were taken into account. All the data for this article were taken from Portfolio123.

The ranking system that I built searched for the best 20 consumer discretionary stocks by the sum of their dividend and earnings yield. For the earnings yield, I used the average of the inverse of the trailing P/E ratio and the inverse of the forward P/E ratio.

After running the ranking system on July 08, 2013, before the market open, I discovered the following twenty stocks:


(Click to enlarge)

The table below presents the trailing earnings yield, the forward earnings yield, the average earnings yield, the dividend yield and the sum of the average earnings yield and the dividend yield for the twenty companies.


(Click to enlarge)

Lear Corp (NYSE:LEA)

Lear Corporation designs, manufactures, assembles, and supplies automotive seat systems, electrical distribution systems, and related components primarily to automotive original equipment manufacturers.

Lear Corp's valuation metrics are much better than those of its industry peers, as shown in the table below.


(Click to enlarge)

LEA will report its latest quarterly financial results on July 26. LEA is expected to post a profit of $1.35 a share, the same as the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.


(Click to enlarge)

Chart: finviz.com

Valassis Communications Inc. (VCI)

Valassis Communications, Inc., together with its subsidiaries, provides media solutions primarily in the United States and Europe.

Valassis Communications Inc.'s valuation metrics are much better than those of its industry peers, as shown in the table below.


(Click to enlarge)

VCI will report its latest quarterly financial results on July 25. VCI is expected to post a profit of $0.77 a share, a $0.01 rise from the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

Icahn Enterprises LP (NASDAQ:IEP)

Icahn Enterprises L.P. engages in the investment, automotive, gaming, railcar, food packaging, metals, real estate, and home fashion businesses in the United States and internationally.

IEP will report its latest quarterly financial results on August 05. IEP is expected to post a profit of $1.58 a share.


(Click to enlarge)

Chart: finviz.com

Nexstar Broadcasting Group Inc (NASDAQ:NXST)

Nexstar Broadcasting Group, Inc., a television broadcasting and digital media company, focuses on the acquisition, development, and operation of television stations and interactive community Websites in medium-sized markets in the United States.

NXST will report its latest quarterly financial results on August 07. NXST is expected to post a profit of $0.29 a share, the same as the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

Cooper Tire & Rubber Co (NYSE:CTB)

Cooper Tire & Rubber Company, together with its subsidiaries, manufactures and markets replacement tires worldwide.

CTB will report its latest quarterly financial results on August 05. CTB is expected to post a profit of $0.94 a share, a 25% rise from the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

Garmin Ltd (NASDAQ:GRMN)

Garmin Ltd., together with its subsidiaries, designs, develops, manufactures, and markets hand-held, portable and fixed-mount global positioning system (NYSE:GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation markets worldwide.

GRMN will report its latest quarterly financial results on July 29. GRMN is expected to post a profit of $0.65 a share, a 33% decline from the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

D.R. Horton Inc. (NYSE:DHI)

D.R. Horton, Inc. operates as a homebuilding company.

DHI will report its latest quarterly financial results on July 25. DHI is expected to post a profit of $0.34 a share, a $1.88 decline from the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

CTC Media Inc (NASDAQ:CTCM)

CTC Media, Inc., together with its subsidiaries, operates as an independent media company in Russia and other CIS markets.

CTCM will report its latest quarterly financial results on August 06.


(Click to enlarge)

Chart: finviz.com

Allison Transmission Holdings Inc (NYSE:ALSN)

Allison Transmission Holdings, Inc., together with its subsidiaries, engages in the design and manufacture of commercial and military fully-automatic transmissions and hybrid-propulsion systems for transit buses.

ALSN will report its latest quarterly financial results on July 29. ALSN is expected to post a profit of $0.25 a share, a $1.96 decline from the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

Gannett Co Inc. (NYSE:GCI)

Gannett Co., Inc. operates as a media and marketing solutions company in the United States and internationally. It operates through three segments: Publishing, Digital, and Broadcasting.

GCI will report its latest quarterly financial results on July 22. GCI is expected to post a profit of $0.58 a share, a 3.6% rise from the company's actual earnings for the same quarter a year ago.


(Click to enlarge)

Chart: finviz.com

Back-testing

In order to find out how a portfolio based on this ranking system would have performed during the last year, last 5 years and last 14 years, I ran the back-tests, which are available through the Portfolio123's screener.

The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmark (S&P 500), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests results are shown in the charts and the tables below.

One year back-test


(Click to enlarge)

Five years back-test


(Click to enlarge)

Fourteen years back-test


(Click to enlarge)

Summary

In addition to good yield and low P/E ratio, the best consumer discretionary stocks, in terms of the sum of dividend and earnings yield, are characterized by strong earnings growth prospects; while the average annual earnings growth estimates for the next five years is 12.71%.

The best consumer discretionary stocks in terms of the sum of dividend and earnings yield has given much better returns during the last year, the last five years, and the last 14 years than the S&P 500 benchmark. The Sharpe Ratio, which measures the ratio of reward to risk, was also much better in all three tests. The one-year return of the screen was exceptionally high at 79.88% while the return of the S&P 500 during the same period was 19.32%. The five-year average annual return of the screen was at 21.93% while the average annual return of the S&P 500 index during the same period was 5.44%. The 14-year average annual return of the screen was at 7.39% while the average annual return of the S&P 500 index during the same period was only 1.97%. Although this ranking system has given superior results, I recommend readers use this list of stocks as a basis for further research.

Source: Ranking Consumer Discretionary Stocks By Dividend And Earnings Yield