Every week, we generate a list of the highest quality and lowest quality stocks as defined by four key factors: 1) Relative Value; 2) Operating Momentum; 3) Analyst Revision Momentum; and 4) Fundamental Quality. Of these 40-60 stocks, about 1/3 make it to a portfolio that is rebalanced monthly. This week, 7 new stocks make the list and two of them stand out to us as potentially good short-term and long-term ideas: CSX Corp. (CSX) and The Chubb Corporation (CB).
CSX Corp. (CSX) deserves particular attention since it's considered by many to be an economic bellwether stock. Following the company's solid 3Q10 report (see earnings call transcript here) (Zacks has a good update on Seeking Alpha), the fundamentals are now such that they deserve to be on our list. The rankings are solid, but do not stand out particularly -- it is ranked 4 out of 5 for all key factors we measure. It is nice to see an economic bellwether stock confirmed by our models since when the factors we look at are confirmed by other sources or rule-of-thumb measures, there is usually more weight behind the rating. CSX appears to be a very solid short-term idea and if these rankings are still in place by the end of the month it will likely be added to our portfolio then.
Another new interesting idea on our list is The Chubb Corporation (CB). We have not seen this stock on our list for a long time, but now it looks extremely attractive, getting the highest rank for Relative Value, and solid rankings for everything else. What strikes us about Chubb is that it has been cited in a number of recent articles on Seeking Alpha that discuss strong dividend growth or potential M&A activity.
Recent monthly volatility for CSX and CB has been about 8% and 4%, respectively. For a short-term investing approach, we would use some ratio of these figures for target and stop loss prices. For 12-month holding periods or longer, deeper fundamental analysis of future potential cash flows and ROIC prospects are required (our report on Starbucks (SBUX) earlier this year is a good example).
Other new "high-quality" names on our Weekly Ranking Update Report this week include Warnaco Group Inc. (WRC), Bank of Montreal (BMO), Mitsubishi UFJ Financial Group (MTU), W.W. Grainger, Inc. (GWW) and Honeywell International (HON). BMO, MTU and HON have been bouncing on and off our list over the last few weeks, but we have not seen WRC and GWW for a while, so we would first focus attention on these.
Freeport McMoran (FCX) continues to maintain high across-the-board rankings after first appearing on our "high-quality" list last week, and now Lubrizol Corporation (LZ) shares this distinction as well -- these are the only two stocks on our list that score a 5 for all four key factors we analyze.
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Disclosure: Currently Long Lubrizol Corporation (LZ)