What are we looking at?
As a follow-up to our survey of Canadian financials earlier this month, this time we spotlight U.S. financial stocks with long-term upside potential.
The screen
We limited our pool to the S&P 100 Index.
To find the most promising, we looked at each stock's 40-week moving average (40wMA). This is the average closing price for the stock over a period of 40 weeks. Charting the moving average week by week gives us a sense of investors' behaviour: Are they growing more (or less) enthusiastic about the company's outlook and are they more (or less) likely to purchase the stock. We selected only those stocks that are above their rising 40wMA.
We chose this indicator because stocks tend to stay relatively close to their 40wMA. When stocks rise far above this average, investors often use this as an opportunity for profit-taking, which then leads to a price correction toward the 40wMA. Sometimes, however, the demand for a stock could be so extensive that the price does not pull back to the average, but stays within a horizontal price range and, over time, it is the average that catches up to the price.
More about Phases & Cycles
Phases & Cycles Inc. has been providing independent research for more than 24 years, using behaviour analysis. It publishes investment ideas for both the Canadian and U.S. equity markets. Its research reaches more than 1,000 users across North America and Europe.
What did we find?
Twelve out of the 14 stocks in our survey are in a long-term up-trend and trading above their rising 40wMA. The table includes the percentage difference between each stock's closing price and 40wMA. It shows that Allstate, JPMorgan Chase and US Bancorp are closest to their 40wMAs and as such, are at an ideal point for accumulation as long as they remain above their 40wMAs.
The table shows that Bank of New York Mellon and Capital One Financial are the furthest away from their averages, suggesting that these stocks are most likely to pull back or trade in a horizontal range for a period of time until their respective 40wMA gets closer to the price, but they should also be considered for later accumulation.
Two stocks did not meet the criteria above: Bank of America and Citigroup. Currently, Bank of America is trading below its 40wMA and Citigroup has a falling 40wMA.
In the adjoining table we summarize our findings. Readers are advised to do further research before investing in the companies shown here.
For a more detailed list covering a larger pool of U.S. financial stocks, please go to http://www.phases-cycles.com/en/and select "trial subscription."
Ron Meisels is the director of research and Monica Rizk is the senior technical analyst for Phases & Cycles Inc. (www.phases-cycles.com). They may hold shares in companies profiled.
Positive financial stocks from S&P 100
| Company | Ticker | $ Price (July 22) | 40wMA | % above avg |
|---|---|---|---|---|
| Allstate | ALL-N | 58.09 | 55.50 | 4% |
| American Express | AXP-N | 93.37 | 88.50 | 5% |
| American Int'l Group | AIG-N | 54.70 | 51.50 | 6% |
| Bank of New York Mellon | BK-N | 39.06 | 34.00 | 13% |
| Berkshire Hathaway - Cl B | BRK.B-N | 128.42 | 120.50 | 6% |
| Capital One Financial | COF-N | 82.12 | 75.00 | 9% |
| Goldman Sachs | GS-N | 175.02 | 165.50 | 5% |
| JPMorgan Chase | JPM-N | 58.67 | 56.50 | 4% |
| Metlife | MET-N | 55.50 | 52.00 | 6% |
| Morgan Stanley | MS-N | 32.91 | 30.75 | 7% |
| US Bancorp | USB-N | 42.25 | 40.75 | 4% |
| Wells Fargo | WFC-N | 51.35 | 47.50 | 7% |