What are we looking for?
Outperforming U.S.-listed stocks using quantitative analysis.
The Nasdaq Composite index is up more than 20 per cent year-to-date after surpassing 13,700, which was a key resistance price level, on Aug. 15 of last year. The S&P 500 index is up about 9.3 per cent this year and is currently testing 4,200, a technical resistance level that is heavily watched by traders. A break above 4,200 could very well diminish fears of the old adage “Sell in May and go away.” A few sectors are providing the momentum in U.S. indexes: technology, communications and consumer discretionary. We were curious which stocks look attractive from Trading Central’s Quantamental perspective.
We began by screening for U.S. stocks with a market capitalization of at least US$5-billion exclusively in the technology, communications and consumer discretionary sectors.
Next, we screened for the top-ranked stocks using Trading Central’s Quantamental rating method, a proprietary stock-rating methodology that covers more than 50,000 stocks worldwide. This metric rates stocks on a scale of one to 10 with 10 being the most bullish and one being the most bearish. The rating uses a combination of valuation, growth, quality, price momentum and income as key metrics when ranking a company.
We were interested in stocks that are indicating five-year EPS growth of at least 10 per cent. We like companies that have a proven track record of increasing their earnings per share.
Finally, in order to screen out companies that are using a lot of leverage in a high-interest rate environment, we capped stocks at a debt-to-equity ratio of one.
For informational purposes, we have also included one-year price performance, the recent stock price, price/earnings, and dividend yield.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is semi-conductor company Analog Devices Inc. ADI-Q The company designs, manufactures, tests and markets a portfolio of products, including integrated circuits, software and subsystems that utilize analog, mixed-signal and digital-signal processing technologies. The stock has the highest TC Quantamental rating on our list at 7.32, which is very strong and above average for the technology sector. U.S. equities with a rating of seven or higher produced a 17.5-per-cent annualized return using a five-year historical period with monthly rebalancing, compared with 11 per cent for the S&P 500 index. The stock is trading within 4 per cent of its record high set on April 3.
PulteGroup Inc. PHM-N, a U.S homebuilder, ranks second on our list. The stock has the highest five-year average EPS growth rate on our list at 50.2 per cent. PulteGroup has the best YTD and one-year performance on our list at with impressive returns of 52.6 per cent and 66.9 per cent, respectively. The stock continues to trend higher, posting new record highs almost daily since April.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described has an 11-per-cent annualized total return compared with 9 per cent for S&P’s 100 index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
CPPIB’s once-a-year report greenwashing expenditure procedures, states watchdog
Tesla, Apple, Common Motors, Honda Motor and Ford
Why Canada would gain from ‘direct index’ investing