Business cycles change throughout the year, providing tailwinds - and headwinds- for various sectors and industries. Every month, my firm, E.B. Capital Markets, LLC, crunches the numbers on more than 1800 stocks to find those with the best history of rewarding investors over the coming three months.
Over the past five years, over one hundred big cap stocks have finished April higher than they started February - far more than usual. The Dow Jones 30 (DIA), Russell 2000 (IWM) and S&P 400 Mid Cap (MDY) index ETFs have posted gains in 8 of the past 10 years during the period - making the next few months a compelling time to own stocks.
Ten Stocks offer Average Returns of more than 20% through April.
With so many stocks enjoying tailwinds, we need to narrow our focus to the strongest plays. Limiting our screen to stocks with both average and median returns of 20% or greater leaves us ten stocks with a robust history of rewarding investors through April.
Three of them are basic materials stocks, which are strong performers in the first two quarters of the year. The period ending April is particularly profitable. Over the last ten years, the Market Vectors Oil Services ETF (OIH) has finished April higher than it started February every year, posting an average return of nearly 10%. The other seven cut across various sectors, including consumer, services industrials and technology.
3 Basic Materials Stocks Deserve your Attention.
Pioneer Natural Resources (PXD) is expected to see EPS growth of 36% in 2012. Pioneer reports Q4 earnings on February 7th and if Q3 is any indication, the company likely enjoyed revenue growth tied to significant production upside. Pioneer's focus on Eagle Ford last year was rewarded as the formation became one of the hottest producing in the country. In 2012, Pioneer expects to leverage its vast exposure in the Permian Basin's Spraberry Trend, and the Wolfcamp Shale found underneath, for additional growth.
Alpha Natural Resources (ANR), which acquired Massey last year, is the third biggest global supplier of met coal and fifth largest coal producer overall. It has the biggest export capacity in the U.S., and benefits from global steel production. In 2011, Worlsteel reports crude steel production increased by 6.8%. With non-residential construction improving in the States - and resurging emerging markets offsetting lackluster demand in the EU, Alpha Natural expects its coal shipments to rise to 125 million tons this year, up from 106 million in 2011.
Canadian Natural's (CNQ) oil sands offer significant production upside, which is expected to drive cash flow $2 billion higher this year from where it was in 2009. The company expects its oil production to expand by 10-20% this year, bringing oil to 70% of total production, up from 65% in 2011. And, while the Keystone XL got pushed off, Canadian oil will continue to move south to America and west to Asia.
|PXD||BASIC MATERIALS||INDEPENDENT OIL & GAS||34.52%||38.19%|
|ANR||BASIC MATERIALS||INDUSTRIAL METALS & MINERALS||24.82%||25.49%|
|CNQ||BASIC MATERIALS||INDEPENDENT OIL & GAS||21.87%||20.83%|
Visions of Warm Weather Support Bottling
Only one consumer goods stock has finished the period higher in each of the past 5 years, Owens Illinois (OI), a maker of glass bottles for beer, wine and soft drinks. Owens is 27% off its 52 week high and is expected to see earnings per share growth of 19% in 2012. Tons shipped last year increased 5% from 2010, with 4% coming from acquisitions. While debt levels remain high, the company's long term debt fell from $3.9 billion to $3.7 billion at the end of Q3. There's no question the company is dependent on Europe, which is its biggest market. But, ahead of summer investor's typically look for ways to get exposure to beverages, making Owen's an intriguing option for value investors.
|OI||CONSUMER GOODS||PACKAGING & CONTAINERS||20.67%||28.37%|
Big Engines and Pumps Lead Industrials.
In industrial goods, Cummins (CMI) has been a big beneficiary of improving profits in the trucking industry, which drove a 57% increase in truck production last year. Diesel engine sales for medium and heavy trucks were also boosted by tax legislation, which allowed for bonus depreciation on truck purchases. Thanks to rising sales across mining, oil & gas and trucking, Cummins Q3 sales jumped 36% year-over-year. Given solid tonnage and spot rates, stubbornly high diesel prices and EPA regulatory tightening, additional growth is likely.
Flowserve (FLS) is the other seasonally strong performer in industrials. The company sells a lot of its flow control products to the chemicals and oil & gas industry, which were among the strongest industries last year. Chemicals production has grown thanks to cheap ethane from newly exploited natural gas shales, and oil & gas E&P has driven rig activity to two decade highs. With indications of strong industry capex in 2012, Flowserve should be able to increase its backlog beyond the $2.8 billion it had entering Q4.
|CMI||INDUSTRIAL GOODS||DIVERSIFIED MACHINERY||36.87%||37.33%|
|FLS||INDUSTRIAL GOODS||DIVERSIFIED MACHINERY||24.75%||27.42%|
All That Glitters Isn't Just Gold
In services, Tiffany (TIF) offers the best history of upside. Asia, where sales grew 19% during the holidays, remains Tiffany's fastest growing region. European austerity weighed down Tiffany's holiday sales, but worldwide comparable sales still increased 4% in the final two months of the year. And, Europe accounted for $117 million in Tiffany sales, far less than the $160 million of sales in Japan, $165 million in Asia, and $503 million in the Americas. Even with the company reducing EPS guidance, estimates of $3.60-3.65 would still yield 23-25% growth.
Maybe We Should Use our iPad to Book our Summer Travel.
In technology, two large cap stocks deserve investors' attention. The first is Priceline (PCLN) - the travel website which recently killed off long time spokesman William Shatner's "negotiator" in order to emphasis fixed price travel. Priceline's international business has been growing quickly, increasing 79% in Q3 year-over-year. Overall, Priceline's sales rose 45%. The company guided for 27-32% revenue growth in Q4, which will be reported February 27th. This was below estimates, which pressured shares lower. However, if the company built in the worst case out of the EU, it may have lowered the bar enough to excite investors ahead of summer.
The second seasonal top performer is none other than Apple (AAPL), which reported blockbuster earnings on higher than hoped iPhone and iPad sales. Those products continued to benefit from consumers shift away from laptops and PC's. And, data suggests there's more upside ahead. Pew Research estimates only 20% of us own tablets - good news for the looming iPad 3. Additionally, the prospect of a revamped Apple TV offering, makes it hard to bet against Apple.
|PCLN||TECHNOLOGY||INTERNET SERVICE PROVIDERS||30.94%||30.55%|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.