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What are we looking for?

Top-quality U.S.-listed stocks using a methodology that examines a quality-factor investing strategy

Quality-factor investing is an investment strategy that involves selecting investments with a focus on characteristics that set them apart from the pack. In essence, it involves identifying and choosing assets, whether they are stocks, bonds, or other financial instruments, that exhibit exceptional qualities. These qualities go beyond just financial health and stability and can include factors such as competitive advantage, sustainability, and a history of reliable performance. When investors employ the quality-factor strategy, they’re aiming to assemble a portfolio of investments that are considered top-tier in various respects.

The screen

Trading Central’s research team employed its Quality Factor methodology to identify high-calibre U.S.-listed stocks with strong financial health and stable profitability.

We begin by setting a minimum market capitalization threshold of US$10-billion in order to screen for stocks that are well established, which tend to have less risk and volatility than small-cap stocks.

Next, we screened for the top-rated stocks using the TC Quality Factor rating methodology developed by Trading Central. The quality-factor group measures the total financial strength of a company in regard to profitability, the robustness of its balance sheet, and earnings quality. They are graded on a points scale, and we set a minimum requirement of 75 out of 100.

We were also interested in companies that are outperforming the broad S&P 500 index, which has returned just over 14 per cent year to date.

Finally, in order to identify stocks that have a potential to trend higher, we screened for companies that are within 15 per cent of their 52-week high.

We have also included P/E, dividend yield, and one-year returns for reference.

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options, and commodities. Strategy Builder, our stock screener is available through leading retail brokers in Canada and worldwide.

What we found

Outperforming U.S. Stocks

RANK COMPANYTICKERINDUSTRYMKT.CAP. ($Bil) RECENT PRICE ($)TC QLT.FCTR.RTNGDIV.YLD (%)P/EYTD PERF. (%)1Y PERF. (%)CHNG. FRM 52.W.HIGH (%)
1Southern Copper CorpSCCO-NMetals & Mining60.2175.72805.1421.632971.7-11.09
2Vistra CorpVST-NUtilities - Independent Power Producers11.8933.35892.559.1439.432.3-5.67
3FedEx CorpFDX-NTransportation63.01261.14751.9216.1844.663.5-7.54
4PACCAR IncPCAR-QFarm & Heavy Construction Machinery44.5783.79771.2212.2529.249.6-5.33
5Parker Hannifin CorpPH-NIndustrial Products50.15384.33821.5224.3434.251-8.81
6Hubbell IncHUBB-NIndustrial Products16.65305.07871.4425.3932.336.7-8.7
7Oracle CorpORCL-NSoftware309.24110.81771.4233.4938.169.1-11.5
8Microsoft CorpMSFT-QSoftware2380322.33780.9433.1433.834.2-12.54
9Apple IncAAPL-QHardware2740175.05890.5529.4435.114.2-11.47
10Marriott International IncMAR-QTravel & Leisure59.61196.18801.0422.5834.234.9-5.27
11EMCOR Group IncEME-NConstruction10.13211.26800.3321.4545.181-5.51
12Ferrari NVRACE-NVehicles & Parts55.48293870.6648.0241.457.4-8.18
13Eli Lilly and CoLLY-NDrug Manufacturers540.76547.52860.7979.3455.792.1-5.35
14Vertiv Holdings CoVRT-NIndustrial Products14.1336.33750.078.98171.7215.9-8.14
15Zoetis IncZTS-NDrug Manufacturers83.54178.92820.8338.2123.820-6.93
16Broadridge Financial Solutions IncBR-NSoftware21.79184.26821.7334.8137.515.3-2.74
17Verisk Analytics IncVRSK-QBusiness Services35.72242.26820.5448.339.636.6-1.18
18Constellation Energy CorpCEG-QUtilities - Independent Power Producers35.42110.19771.0246.4727.726.2-2.26

Source: Trading Central

Topping our list is Southern Copper Corp. SCCO-N, an integrated copper producer that is primarily engaged in producing copper, silver and zinc in Mexico and Peru. The stock has a market cap of US$60.21-billion, a TC Quality Factor rating of 80 out of 100, and the highest dividend yield on our list at 5.14 per cent. The stock has gained 29 per cent year to date, outperforming the broad S&P 500 index by 15 percentage points.

Apple Inc. AAPL-Q, the computer and software giant, and Vistra Corp. VST-N, a holding company which operates an integrated retail and electric power generation business are tied with the highest TC Quality Factor rating on our list at an impressive 89 out of 100. Vistra Corp has the lowest P/E on our list at 9.14.

Vertiv Holdings Co. VRT-N, a designer and manufacturer of digital infrastructure technology for data centers and communication networks, has the best year-to-date and one-year return on our list at 171.7 per cent and 215.9 per cent, respectively, after the company announced a large 59-per-cent earnings surprise last month.

Quality-factor investing encourages a more rational, data-driven approach to decision-making. These stocks often perform well across economic cycles, provide dividend income and limit losses during market downturns. However, it’s crucial to remember that no investment strategy is entirely risk-free, and the performance of quality-factor strategies can vary in different market conditions. Diversification, risk management and a thorough understanding of one’s investment objectives and risk tolerance remain critical elements in achieving investment success.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

SymbolName% changeLast
SCCO-N
Southern Copper Corp
+0.82%117.51
VST-N
Vistra Energy Corp
+6.21%102.1
FDX-N
Fedex Corp
-0.68%247.59
PCAR-Q
Paccar Inc
+0.51%109.43
PH-N
Parker-Hannifin Corp
+0.62%529.83
HUBB-N
Hubbell Inc B
+3.09%413
ORCL-N
Oracle Corp
-0.95%122.91
MSFT-Q
Microsoft Corp
+0.74%430.16
AAPL-Q
Apple Inc
+1.66%189.98
MAR-Q
Marriot Int Cl A
+1.95%236.59
EME-N
Emcor Group
+2.2%398.69
RACE-N
Ferrari N.V.
+0.64%416.16
LLY-N
Eli Lilly and Company
-0.13%807.43
VRT-N
Vertiv Holdings Llc.
+4.87%106.17
ZTS-N
Zoetis Inc Cl A
-0.49%170.07
BR-N
Broadridge Financial Solutions Llc
-0.57%200.54
VRSK-Q
Verisk Analytics Inc
+0.93%251.58
CEG-Q
Constellation Energy Corp
+4.28%230.63

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