Uncertainty reigns in the market these days, with a range of potential outcomes for the economy, interest rates, and corporate earnings in the remainder of 2023. There are credible arguments to be made for outperformance by growth, value, and momentum stocks from here.
So why pick one factor or style of investing when you can have them all?
Barron’s screened the
index for stocks exhibiting characteristics often favored by growth, value, and momentum investors. The screen yielded a dozen stocks that are cheaper than average, have a record of growing earnings that Wall Street analysts expect to continue, and have beaten the market over the short and medium terms.
The screen started with momentum, namely stocks in the Russell 1000 that have beaten the index over the past month and half year. It’s up 1.1% and 11.2%, respectively, over those periods. That cut the list to 199 names.
Next, the companies should have value appeal. Their stocks must be trading for less than the Russell 1000’s average price to estimated earnings over the coming year of 18.7 times and the index’s price to forward cash flow of 13.2 times. That reduced the screen to 50 stocks that have gained recently, but remain cheaper than the average Russell 1000 stock based on those two important metrics.
Finally, the companies must have delivered better earnings-per-share growth over the past five years—since before the Covid-19 pandemic—than the Russell 1000. They must also be expected to increase per-share earnings faster than the index average over the next three years—as far as most analysts’ estimates tend to go. (Barron’s made some adjustments to calculations involving negative numbers.) That growth requirement reduced the screen to 12 stocks.
As with any screen, it is just a starting point for further analysis. Here’s the list:
|Company / Ticker||Market Cap (bil.)||6-Month Return||1-Month Return||Fwd P/E||Fwd P/CF||Past 5 Years Average EPS Growth||Next 3 Years Est. EPS Growth|
|Meta Platforms / META||$617.0||155.4%||14.7%||18.28||11.46||23.7%||13.0%|
|Skechers USA / SKX||$8.3||50.8%||11.8%||16.87||11.35||34.4%||16.3%|
|Lennar / LEN||$32.7||38.7%||7.3%||11.23||7.53||39.0%||16.3%|
|Univar Solutions / UNVR||$5.6||36.7%||1.5%||12.21||9.60||48.4%||14.0%|
|DaVita / DVA||$8.0||29.4%||11.4%||14.40||8.69||14.6%||18.7%|
|HCA Healthcare / HCA||$77.0||29.0%||7.7%||15.72||8.82||38.4%||15.0%|
|Primerica / PRI||$6.6||27.6%||6.9%||11.85||6.48||20.0%||12.7%|
|Owens Corning / OC||$9.7||25.5%||10.7%||9.94||6.58||61.8%||16.0%|
|Crown Holdings / CCK||$10.1||24.7%||3.4%||13.60||7.37||32.6%||15.7%|
|Masco / MAS||$12.1||18.2%||7.3%||15.89||12.15||19.8%||12.0%|
|Allison Transmission Holdings / ALSN||$4.3||14.6%||7.0%||7.33||6.09||18.4%||41.0%|
|FLEETCOR Technologies / FLT||$15.4||14.6%||1.4%||12.21||9.44||21.8%||12.0%|
Source: FactSet, Bloomberg
Barron’s ran a screen with the same criteria in September. Today’s list looks entirely different, with big changes in which stocks have momentum. Last time, the screen produced a lot of energy and healthcare companies—two groups that continued to have a strong run for a few more months, before falling behind in 2023 as tech stocks took the baton.
Today’s screen yielded a more eclectic group of companies, spread across industries and sectors.
(ticker: META) is a notable name on the list. The stock has delivered a whopping 155% return over the past six months and nearly 15% over the past month, although it still trades for just 18.3 times expected earnings over the coming year, below the Russell 1000 average. Earnings are forecast to rise 13% annually for the next three years. That is less than the almost 24% rate at which Meta’s earnings compounded annually over the last half-decade, but healthy growth nonetheless—especially for a company of Meta’s scale.
(HCA) also makes the list. The $77 billion company is coming off a strong first-quarter earnings report, with a postpandemic rebound in delayed procedures. The nursing staffing shortage is also getting better, management says. Analysts see continued earnings growth in the coming years. HCA stock trades for 15.7 times forward earnings.
Shares of home builder
(LEN) have rallied 39% in six months, but remain inexpensive at 11.2 times expected earnings over the coming year. Housing is in a recession at the moment, and many investors want little to do with related stocks. The long-term picture is brighter, however, with a continuing shortage of housing in the U.S. that should keep Lennar busy. Analysts expect earnings to compound at more than 16% annually in the next three years.
(CCK) also made the list. It’s a big player in the packaging business—producing aluminum cans, glass bottles, and other odds and ends. The stock trades for 13.6 times forward earnings today, as investors fret about a postpandemic hangover. People eating out more instead of going to the grocery store means less packaging for Crown to sell, the thinking goes. But analysts remain bullish about longer-term growth, as consumers and companies demand more sustainable and environmentally-friendly packaging that carries wider profit margins for Crown.
Rounding out the list are
(DVA), Primerica (PRI),
Allison Transmission Holdings
Write to Nicholas Jasinski at [email protected]