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Who Will Win the March Madness of Trump Stocks?

Sweta Killa

The National Collegiate Athletic Association (NCAA) Men's Division I Basketball Tournament is underway with the champion slated to be crowned on April 3, at University of Phoenix Stadium in Glendale, Arizona. This has spread “March Madness” in the investment world and millions of Americans are seeking to capitalize this opportunity by enthusiastically filling in the brackets that could lead to handsome returns from the stocks to be wagered on.

Since the basketball tournament has advanced to the ‘Sweet Sixteen’ level, let’s fill in 16 stock brackets first and then compare those like we do for March Madness to get to the real winner.

Strategy of Picking ‘Sweet 16’ Stocks

Akin to the basketball championship, we have chosen four sectors – industrial products, medical, finance, and basic materials – among our 16 Zacks sectors that are hogging investor attention in Trump era. We have picked the four best industries (within the top 45%) from each sector with the help of our Zacks Industry Rank.

Then, we picked one stock from each industry having a Zacks Rank #1 (Strong Buy) or 2 (Buy) with the highest market capitalization in order to get the ‘Sweet Sixteen’ stocks. Top-ranked stocks indicate rising earnings estimates, and those with strong earnings momentum are more likely to outpace the market. This was a cakewalk all thanks to the Zacks Stock screener.

Once the stocks are chosen, the performance since election (November 9) was considered for the qualifiers to the ‘Elite Eight.’ Notably, the stocks with the highest industry ranks will matchup with the stocks having low industry ranks.

Industrial Products

The four top industries and their best stocks in the industrial sector are as follows:

1.    Office Supplies: Rank in the top 1%; Stock – Avery Dennison Corp. AVY
2.    Manufacturing - Electrical Utilities: Rank in the top 2%; Stock – Hubbell Inc. HUBB
3.    Manufacturing - Material Handling: Rank in the top 2%; Stock – Milacron Holdings Corp. MCRN
4.    Rubber - Plastics: Rank in the top 6%; Stock – Proto Labs Inc. PRLB

AVY vs. PRLB: Avery Dennison edged past Proto Labs with a gain of 11.1% versus 5.3% for the latter.

HUBB vs. MCRN: Milacron Holdings easily outpaced Hubbell in the same period, gaining 19.1% against 8.8% for HUBB.

Medical

The four top industries and their best stocks in the medical sector are as follows:

1.    Medical - Instruments: Rank in the top 39%; Stock – IDEXX Laboratories Inc. IDXX
2.    Medical - Drugs: Rank in the top 42%; Stock – Grifols S.A. GRFS
3.    Medical - Biomedical and Genetics: Rank in the top 43%; Stock – Galapagos NV GLPG
4.    Medical - Dental Supplies: Rank in the top 43%; Stock – C.R. Bard Inc. BCR

IDXX vs. BCR: Here, IDEXX Laboratories easily outpaced C.R. Bard as it gained 40% since election compared to 14% for BCR.

GRFS vs. GLPG: Galapagos is clearly the winner as it returned 33.5% since election versus a gain of 8.7% for Grifols.

Finance

The four top industries and their best stocks in the financial sector are as follows:

1.    Banks - Northeast: Rank in the top 11%; Stock – Signature Bank SBNY
2.    Banks - Midwest: Rank in the top 12%; Stock – Commerce Bancshares Inc. CBSH
3.    Banks - West: Rank in the top 12%; Stock – East West Bancorp Inc. EWBC
4.    Financial - Investment Bank: Rank in the top 13%; Stock – Raymond James Financial Inc. RJF

SBNY vs. RJF: Here, RJF wins over SBNY as it has returned 13.8% since election versus a gain of 10.8% for the latter.

CBSH vs. EWBC: EWBC beats CBSH in the same period by a margin of 9.8%.

Basic Materials

The four top industries and their best stocks in the basic materials sector are as follows:

1.    Mining - Iron: Rank in the top 5%; Stock – VALE S.A. VALE
2.    Mining - Non Ferrous: Rank in the top 8%; Stock – Arconic Inc. ARNC
3.    Steel - Producers: Rank in the top 9%; Stock – ArcelorMittal MT
4.    Fertilizers: Rank in the top 14%; Stock – The Mosaic Company MOS

VALE vs. MOS: VALE wins over Mosaic by a wide margin of 15.3% since election.

ARNC vs. MT: Arconic easily defeated ArcelorMittal by adding 51.2% versus 26.6% gain for the latter.

The winners of each industry group will compete against each other in the Elite Eight.

Elite Eight (March 25)

Among the eight winning stocks, the highest average earnings surprise over the past four quarters was used to decide the winners of each sector that should advance to the Final Four.

AVY vs. MCRN: Milacron Holdings has seen average earnings surprise of 9.23% versus 6.17% for Avery Dennison. Hence, MCRN wins over AVY.

IDXX vs. GLPG: Galapagos wins with an average positive earnings surprise of 203.27% over the past four quarters against 14.68% for IDEXX Laboratories.

RJF vs. EWBC: Raymond James wins over East West Bancorp, as its average earnings surprise of 14.78% is much higher than that of 7.63% for EWBC.

VALE vs. ARNC: Here, Arconic is the winner with average earnings surprise of 79.97% as compared with 24.74% for VALE.

Final Four (April 1)

We now have the best stocks in the four sectors. To advance to the next level, we have considered the year-over-year earnings growth for fiscal 2017. Let us once again see the Zacks Industry Rank of the four stocks to decide the contenders.

Milacron Holdings (MCRN) – Zacks Industry Rank in the top 2%
Galapagos NV (GLPG) – Zacks Industry Rank in the top 43%
Raymond James Financial Inc. (RJF) – Zacks Industry Rank in the top 13%
Arconic Inc. (ARNC) – Zacks Industry Rank in the top 8%

So in the matchups, we have Milacron Holdings and Galapagos on one side, and Arconic and Raymond James on the other.

Milacron Holdings (MCRN) vs. Galapagos NV (GLPG): Milacron Holdings’ earnings are expected to grow 6.62% while Galapagos will likely see earnings decline of 270.77% for fiscal 2017. With a positive earnings growth rate, MCRN wins and advances toward the final round to take on the winner of ARNC vs. RJF.

Arconic Inc. (ARNC) vs. Raymond James Financial Inc. (RJF): Here, earnings at Arconic are expected to grow 12.24% while Raymond James earnings will see growth of 14.93%. As a result, RJF wins and will again matchup with Milacron Holdings for the championship.

The Championship (April 3)

Let’s look at our VGM score (V stands for Value, G for Growth and M for Momentum), which is simply a weighted combination of the three. The VGM score when combined with a Zacks Rank #1 or 2 offer the best upside potential with a frenzy of cheap price, robust growth and strong momentum.

Milacron Holdings finally wins over Raymond James with a VGM score of ‘B’ against ‘D’ for the latter.

Result

Based on our internal research and metrics, it looks like Milacron Holdings (MCRN) will lift the 2017 March Madness trophy and could be considered a top bet in the first year of Trump presidency. While it was exciting and fun to dribble toward the winning stock, we expect the twists and turns in the NCAA tournament to lead to some dramatic moves in the investment world.

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Commerce Bancshares, Inc. (CBSH): Free Stock Analysis Report
 
Signature Bank (SBNY): Free Stock Analysis Report
 
East West Bancorp, Inc. (EWBC): Free Stock Analysis Report
 
Mosaic Company (The) (MOS): Free Stock Analysis Report
 
Raymond James Financial, Inc. (RJF): Free Stock Analysis Report
 
Hubbell Inc (HUBB): Free Stock Analysis Report
 
Milacron Holdings Corp. (MCRN): Free Stock Analysis Report
 
IDEXX Laboratories, Inc. (IDXX): Free Stock Analysis Report
 
Galapagos NV (GLPG): Free Stock Analysis Report
 
Grifols, S.A. (GRFS): Free Stock Analysis Report
 
C.R. Bard, Inc. (BCR): Free Stock Analysis Report
 
VALE S.A. (VALE): Free Stock Analysis Report
 
Arconic Inc. (ARNC): Free Stock Analysis Report
 
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