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4 Consumer Cyclical Companies to Consider as Trade Uncertainty Lingers

While the trade war between the U.S. and China persists, Europe is now in the Trump administration's cross hairs. On Wednesday, a trade representative announced the U.S. plans to implement tariffs on $7.5 billion worth of European exports, including aircraft and agricultural products, as soon as Oct. 18.

As a result, investors may find value opportunities among consumer cyclical companies that outperformed the Standard & Poor's 500 Index by at least 20% over the past 12 months. While companies in this sector are more sensitive to downturns, their products are still important to consumers. The GuruFocus Industry Overview page shows the retail sector makes up the majority of the space, followed by entertainment, travel and leisure and restaurants.


As of Oct. 3, the GuruFocus All-in-One Screener, a Premium feature, found several consumer cyclical stocks that have a market cap over $5 billion and had a higher return relative to the index for the period. It also looked for companies with a business predictability rank of at least one out of five stars and a price-earnings ratio below 14.

Stocks that met these criteria were D.R. Horton Inc. (NYSE:DHI), PulteGroup Inc. (NYSE:PHM), Toll Brothers Inc (NYSE:TOL) and Whirlpool Corp. (NYSE:WHR). The S&P 500 has posted a return of roughly 15.19% year to date.

D.R. Horton

Outperforming the index by approximately 23.29% over the past 12 months, D.R. Horton has a $18.94 billion market cap; its shares were trading around $51.37 on Thursday with a price-earnings ratio of 12.28, a price-book ratio of 1.98 and a price-sales ratio of 1.15.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

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The Arlington, Texas-based homebuilder has a GuruFocus financial strength rating of 6 out of 10. While it has a low cash-debt ratio of 0.25, the robust Altman Z-Score of 5.26 indicates the company is in good financial standing despite recording a slowdown in revenue per share growth over the past 12 months.

D.R. Horton's profitability and growth fared even better, scoring an 8 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which implies business conditions are stable. It also has a one-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.

Of the gurus invested in D.R. Horton, Steve Mandel (Trades, Portfolio) has the largest stake with 3.36% of outstanding shares. Other top guru investors are George Soros (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Ron Baron (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Scott Black (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).

PulteGroup

Beating the benchmark by around 49.98% over the past 12 months, PulteGroup has a market cap of $9.92 billion; its shares were trading around $36.17 on Thursday with a price-earnings ratio of 10.97, a price-book ratio of 1.97 and a price-sales ratio of 1.

According to the Peter Lynch chart, the stock is undervalued.

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Headquartered in Atlanta, the homebuilder's financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. Although the company has issued approximately $29.55 million in new long-term debt over the past three years, it is at a manageable level due to comfortable interest coverage. In addition, the Altman Z-Score of 3.71 suggests it is in good financial health.

In addition to an expanding operating margin, PulteGroup is supported by strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 8, which indicates hearty business conditions. The company's one-star business predictability rank is on watch, however.

With 0.32% of outstanding shares, Pioneer is the company's largest guru shareholder. Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ray Dalio (Trades, Portfolio), Richard Snow (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Cohen and Chuck Royce (Trades, Portfolio) also have positions in the stock.

Toll Brothers

Toll Brothers, which has outperformed the S&P 500 by 21.32% over the past 12 months, has a $5.53 billion market cap; its shares were trading around $39.44 on Thursday with a price-earnings ratio of 8.36, a price-book ratio of 1.15 and a price-sales ratio of 0.79.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated the Horsham, Pennsylvania-based homebuilder's financial strength 5 out of 10. Although the company has a low cash-debt ratio, the Altman Z-Score of 3.32 suggests it is in good financial standing.

Toll Brothers' profitability and growth scored a 7 out of 10 rating on the back of an expanding operating margin, strong returns that outperform more than half of its competitors, a high Piotroski F-Score of 8 and a one-star business predictability rank.

Fisher is the company's largest guru shareholder with 0.32% of outstanding shares. Pioneer, Donald Smith (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and Royce also own the stock.

Whirlpool

Outperforming the benchmark by around 37.74%% over the past 12 months, Whirlpool has a market cap of $9.71 billion; its shares were trading around $153.13 on Thursday with a price-earnings ratio of 10.75, a price-book ratio of 3.55 and a price-sales ratio of 0.47.

The Peter Lynch chart suggests the stock is undervalued.

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Headquartered in Benton Harbor, Michigan, the home appliance manufacturer has a GuruFocus financial strength rating of 4 out of 10. Although the company has issued approximately $1.7 billion in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. In addition, the Altman Z-Score of 2.03 indicates it is under some financial pressure.

Whirlpool's profitability and growth fared better, scoring a 7 out of 10 rating. Although the operating margin is in decline, the company is supported by strong returns that outperform over half of industry peers, a high Piotroski F-Score of 7 and a one-star business predictability rank.

Of the gurus invested in Whirlpool, PRIMECAP Management (Trades, Portfolio) has the largest stake with 12.29% of outstanding shares. Other top guru shareholders include Barrow, Hanley, Mewhinney & Strauss, Tom Gayner (Trades, Portfolio), Pioneer, Greenblatt, Brandes, Lee Ainsile and Cohen.

Disclosure: No positions.

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This article first appeared on GuruFocus.