To be honest, I’m nervous about the ability of the equity market to continue with its sharp run up in the short term. The S&P 500 is flirting with 1700 and has rallied almost 9% from the June 24th low. Investors itching to put fresh cash to work may want to think about a screen of strong earnings and inexpensive valuation to navigate the investment waters.
In order to search for companies with value and earnings strength, I set up a screen looking for stocks with forward PE ratios of less than or equal to 14, an earnings surprise of at least 10% in the last reporting quarter, and a Zacks Rank #1 (Strong Buy). This simple screen feature and criteria was run on Zacks.com. Twenty six stocks fit the criteria.
Twenty six stocks are a lot to choose from. I decided to inject some discretion into the process. Given the run in financial names and the fact that finance companies can trade at “low” PE ratios, financials were thrown out of the mix. I also reviewed bar charts, looking for a setup which could support price strength.
Here are a few names which caught my interest: Visteon (VC), AMERCO INC (UHAL), and Sanderson Farms (SAFM). Visteon is an auto supplier, AMERCO is a diversified company with a truck rental and insurance operation, and Sanderson Farms is a poultry producer. A quick run down of potential fundamental positives and chart perspectives are provided for each name:
Visteon could benefit from the favorable outlook for auto sales. Ford (F) recently narrowed its 2013 sales range to 15.5 to 16.0 mlu from 15.0 to 16.0 mlu suggesting that the build in China and North America would be above prior estimates, however, the build in Europe was revised lower. The average age of a U.S. passanger vehicle on the road is old and there is pent up demand. Technically, Visteon is in a broad consolidation. A rally over the $67 area could signal a new leg higher. Prices have recently found support in the $64.50 area. The spike low near $58 suggested buying power under the market during June.
Sanderson Farms could benefit from lower corn prices. New crop corn prices have been falling on an expected build in supply and favorable North American weather patterns. Extremely high beef and hog prices could also benefit poultry demand on a substitution effect. Prices remain in an uptrend from the February low and have recently pulled back into support in the $68 area. It may take a close below the trend line to signal a reversal of the uptrend.
AMERCO may be able to benefit from moving and storage activity on the back of increased home sales and a stronger housing market. It has also increased its distribution through more company locations and a larger truck fleet. The chart shows a large triangle formation. A break out over the $180 area could signal a new leg higher. Typically, this type of consolidation is a pause before prices continue with the trend. A break under $160 would invalidate the friendly looking chart formation.
Poultry production, auto parts, and truck rental and storage are not sexy names, but may be the ticket for investors looking for ideas in a high flying market.
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