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What are we looking for?

U.S.-listed stocks that are well positioned for future growth, have an established history of low earnings volatility and trade at attractive valuations.

The screen

We screen for stocks that have demonstrated a disciplined approach to earnings growth, combining reasonable valuations, strong underlying businesses with room for bottom-line expansion, positive investor sentiment and low leverage.

Consistent and reliable earnings indicate a lower probability of negative earnings surprises, and may attract institutional investors who prefer lower variations in earnings, in addition to potentially reducing borrowing costs. Our criteria cover valuation, trailing fundamentals, future growth and risk factors:

  • Price-to-earnings and price-to-book value ratios less than the S&P 500 (20.6 and 2.82, respectively), and total debt-to-equity less than 1;
  • Earnings-per-share five-year volatility less than the S&P 500 average (21.9 per cent);
  • Short interest (percentage of shares outstanding sold short) less than the S&P 500 average (3.8 per cent);
  • Positive earnings growth over the next 12 months;
  • Trading price less than the average broker target price.

More about Thomson Reuters

Thomson Reuters delivers trusted news and intelligent information to more than one billion people in 140 countries every day. Our content, software and technology support the way professionals work in a rapidly changing, ever more complex world. Thomson Reuters Eikon is the platform used by financial and corporate clients to access top research, portfolio analytics, charting and screening for every asset class.

What did we find?

Our screen yields 10 companies split evenly across defensive and cyclical sectors, and although the recent rally has favoured the latter, CVS Health Corp. stands out as it has underperformed the S&P 500 consumer staples index by a wide margin, returning double-digit declines on both a quarter and year-to-date basis versus the consumer staples index's gain of 2.5 per cent and a decline of 2.8 per cent, respectively.

CVS is a leading U.S. drug-store and pharmacy-benefit-management (PBM) operator, where lower forecasted revenue growth due to increased competition has driven negative returns this year as investor adjust expectations and valuations accordingly. Recent concerns over U.S. president-elect Donald Trump's comments targeting inflated drug prices drove a sell-off across the pharmaceuticals industry, which has extended to PBMs such as CVS because of fears they could be at risk.

This may have provided a lucrative entry point if this sell-off is overdone as PBMs play no active role in setting drug list prices, which are the responsibility of drug manufacturers.

This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.

Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.

U.S. stocks with a history of low earnings volatility

CompanyTickerMarket Cap ($bil U.S.)P/E P/BEPS Growth (Next 12M)D/EEPS 5Y VolatilityPrice To Mean Price TargetShort InterestQTD Price % ChgYTD Price % Chg
Intel Corp.INTC-Q169,46716.82.77.0%43.8%8.1%0.901.6%3.8%-5.3%
Cisco Systems Inc.CSCO-Q150,89414.42.42.6%54.9%8.5%0.910.9%10.7%-5.2%
CVS Health Corp.CVS-N85,45417.12.41.7%74.4%3.5%0.921.2%-18.0%-10.0%
BlackRock Inc.BLK-N62,97020.42.213.4%17.2%5.8%0.951.4%14.1%7.2%
Chubb Ltd.CB-N61,64817.71.35.9%27.8%16.7%0.951.3%13.4%5.4%
Bank of New York Mellon Corp.BK-N51,40816.51.311.9%84.2%10.7%0.961.5%18.0%21.9%
Cigna Corp.CI-N34,60818.32.518.4%36.1%10.0%0.890.6%-7.9%3.4%
Eversource EnergyES-N17,03619.11.65.4%95.8%5.9%0.931.3%5.3%-0.8%
Mohawk Industries Inc.MHK-N14,82316.82.67.1%47.9%5.6%0.851.1%5.5%-0.2%
Sykes Enterprises Inc.SYKE-Q1,26619.41.79.5%37.5%16.3%0.941.1%-4.1%4.9%

Source: Thomson Reuters Eikon

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