This year’s market rally is making it tough to find stocks that both are reasonably priced and have strong earnings trend. But they’re out there, though admittedly not all that many.
Of course, the rebound—just like so many others in the past—has pushed up the price of stocks—some into the stratosphere. And that’s why screens come in handy: strategists give a heads-up on possible moneymakers that are still affordable.
Now, the S&P 500’s gains from Big Tech names—AI advances and plans drove those increases—have been pointed out time and again. But they aren’t the only ones that are up.
Wall Street’s belief that the Fed will stop raising interest rates has pulled up sectors from manufacturing to retail. The Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which weights each stock in the index equally and shows the movement off the average stock, has increased 10% this year.
For the everyday investor, trying to find the deals can be a test of patience. That’s why Evercore strategists are helping out.
The team screened stocks for three things:
- Those with a market capitalization of at least $15 billion that have performed in the bottom 50th percentile of their sectors since the end of March, when the market started to steady from the Silicon Valley Bank collapse.
- 2023 analyst earnings per-share growth expectations in the top 50th percentile of their sectors.
- 2023 EPS estimates raised by analysts since the end of March.
Evercore came up with 23 stocks. Seven of the better-known ones are T-Mobile (TMUS), Workday (WDAY), Cloudefare (NET),
Duke Energy
(DUK),
Deere
(DE),
Humana
(HUM), and
Pinterest
(PINS).
Let’s look at the last three more closely.
Since March, Deere (DE) is up about 6% versus the Industrial Select Sector SPDR Fund’s (XLI) 8% gain. The heavy-equipment company’s stock is taking a breather after outperforming the S&P 500 in 2022.
But analysts expect the company’s EPS to grow about 29% this year, more than twice the growth rate of the rest of the industrial sector, according to FactSet. And they’ve have lifted 2023 EPS estimates by just over 1% since the end of March. Deere reports earnings on Aug. 18.
Humana (HUM) is down almost 6%, while the
Health Care Select Sector SPDR Fund
is up about 6%. This comes after peer
UnitedHealth Group
(UNH) warned of higher payouts because patients are moving ahead with elective procedures that they delayed because of the pandemic.
That on its own is a headwind to profits for health insurers, but analysts have still revised Humana’s EPS estimates upward, with 2023 forecasts up just over 2% since the end of March. The expected growth this year is about 11%, in part because of millions of new sign-ups for Medicare Advantage. Humana reports earnings on Aug. 2.
Pinterest (PINS) stock has been flat, while the
Consumer Discretionary Select Sector SPDR Fund
(XLY) has gained 14% since March. Sales guidance was disappointing in April, but analysts have still raised EPS projections by 5%, saying that management’s outlook was conservative given the uncertain consumer environment. The shopping platform is also increasing the number of advertisements, which is part of expected growth. Analysts are modeling 27% EPS growth this year.
It’s slim the pickings right now. But a handful is better than none. At least there’s something to consider buying.
Write to Jacob Sonenshine at [email protected]
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