When stocks in a certain sector behave in this fashion, we often refer to it as “rotation”. For example, we might hear the analysts or newscasters mention investor preference for Energy stocks and disdain for Healthcare stocks.
Within the sectors, though, stocks move for different reasons, often driven by short-term events or how the company’s prospects might be impacted by certain themes (yes, it is a gold producer, but they have hedged all of their production through 2008, for example).
In any case, I run a screen, using StockVal, every week in which I try to identify fundamentally attractive stocks that may be breaking out.
There were 14 stocks that showed up this week:
As you can observe, the goal of the screen is to find stocks with some positive price momentum, reasonable valuations and improving EPS estimates. All of these stocks are within 10% of their 52 week high, but no more than 25% above their 52 week low. The list is well represented by various economic sectors, though Financials have more than their fair share.
Looking at the three industrial companies, MINI appears to be on the verge of a breakout. It has a solid balance sheet and the lowest PE since 2004. CR, which actually isn’t, unfortunately, a crane company despite the name, lacks the international exposure that many investors have been seeking. TKR, a specialty steel company, trades at a very low multiple despite the recent rally.
WWE remains a very strong brand franchise with an excellent balance sheet. In the Healthcare area, see my article from 4 weeks ago. 2008 estimates ticked up after the earnings call, and the balance sheet very strong. The Contract Research Organization industry is on fire, supported by continuing concerns about drug safety as well as on-going outsourcing of clinical trials. XRAY has been on a tear for years. While the PE might be considered high at 21, it is more reasonable if one considers that the company is an aesthetic play. On top of that, it has 62% exposure to international markets.
I am pretty familiar with most of the Financials that the screen generated. SIVB could have some hidden assets in its ownership positions in start-up companies, as the IPO market is hot. This is a pretty unique franchise and worth investigating. PNX trades at just 1.2X Book Value and has a sizeable though perhaps not visible asset management group. EWBC is one of the leading Asian-focused U.S. banks and has been rather aggressive on acquisitions lately. This one used to trade above 20X, but the recently slower growth has been discounted rather significantly in the forward outlook, perhaps too much so. MCY is a California auto insurer that trades at below 2x Book Value. Earnings estimates have finally started to tick up. ABK has stunned the market at a time where credit risk has been out of favor, rising to an all-time high. Yet, the stock remains attractively valued. CB, the high-end P/C insurance company, is a perfect Financial stock for those concerned about credit exposure. It trades at just 1.7X book, its earnings estimates have been on a tear and it trades at just 10X. AFL’s estimates are rebounding, and the stock trades at a median 3x P/B. It too lacks credit exposure.
The last stock on the list, the sole Tech stock, is ACXM, which actually doesn’t look like a breakout situation to me. This company is an LBO/buyout candidate. Still, though, several of the stocks on this list appear to be worth pursuing further.
Disclosure: No position in any stock mentioned except CVD