What are we looking for?
Let's look for U.S. stocks that have fallen sharply, but still have stable or even growing profits.
More about today's screen
We'll look for stocks in the S&P 500 that are within 5 per cent of their 52-week lows, but that still have earnings estimates that are flat or even improved in the past 30 days.
We'll ask for help on this screen today from Morningstar CPMS, an equity research firm. CPMS also included some columns on valuation in the table so that readers can see how these stocks rank against the rest of the U.S. companies it follows.
More about CPMS
CPMS is an equity research and portfolio analysis firm owned by Morningstar Canada. It maintains a database of about 680 of the largest and more liquid Canadian stocks, plus more than 2,200 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
Craig McGee, a senior consultant with CPMS, believes investors should be looking carefully at U.S. stocks because of low valuations and that this screen is a good place to start.
"In our U.S. database of 2,230 stocks, the median price to book valuation has fallen by 25 per cent over the past three months (1.60 times book value versus 2.25 times at the end of June)," he said. "Since we began collecting U.S. data in 1993, we've only seen steeper declines in August, 1998 (negative 29 per cent) and November, 2008 (negative 36 per cent)."
Meantime, the average earnings estimate has been revised downward by 4.2 per cent for the latest three months, he said, adding that the revision extremes in 2001 and 2002 were negative 17 per cent and in 2008 to 2009 were negative 29 per cent.
Investors should be cautious about U.S. stocks because of global debt concerns and reduced growth expectations, he said. But "if current expectations are met going forward, we could see a comeback in the U.S. market as investors respond to an overreaction."
Notes to table
* Grades relative to 2,230 U.S. stocks in the CPMS universe (A: best, E: worst).
** to Sept. 30, 2011.
Source: Morningstar Canada
Scott Adams