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What are we looking for?

Outperforming U.S. equities with strong balance sheets, low debt levels and stable cash flows that are better equipped to weather economic downturns.

The S&P 500 index has grappled with a sharp decline of just over 6 per cent since its September high amid rising interest rates which have sent shockwaves through financial markets. Our stock screen has identified a select group of U.S.-listed companies that appear to be defying the odds. Even in the face of the broader market’s challenges, these stocks continue to outperform the S&P 500.

The screen

We began by setting a minimum market capitalization threshold of US$5-billion to focus on more established companies in the market.

Next, we screened for companies that are trading within 10 per cent of their most recent 52-week highs. Buying stocks trading near their 52-week highs amid a broad market decline can be advantageous because it often signifies strong upward momentum and relative strength compared with the wider market.

We focused on companies indicating revenue and earnings-per-share (EPS) growth of at least 10 per cent last quarter compared with the prior year. Companies with robust revenue and EPS growth are often less susceptible to economic downturns. Their ability to generate higher sales and profits may help them maintain stability even when profitability is challenged by adverse market conditions, as they have the financial resources to cover expenses, service debt, and invest in growth even when revenues decline.

Regarding levels of debt, we capped debt to equity at 1. Companies with lower debt levels typically have lower interest expenses, which means they are better positioned to maintain profitability even when interest rates continue to rise or market conditions deteriorate.

We have also included year-to-date and one-year price performance for reference.

More about Trading Central

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.

Outperforming U.S. stocks

RANK COMPANYTICKERMKT.CAP. ($Bil) RECENT PRICE ($)CHNG. FRM 52.W.HIGH (%)EPS.GRTH 5-YR (%)EPS.GRTH LST.QTR (%)REV.GRTH LST.QTR (%)DEBT/EQTY.P/E1Y PERF. (%)YTD PERF. (%)
1Arista Networks IncANET-N57.59186.03-6.3826.1364.8938.70.0134.3953.353.3
2Arch Capital Group LtdACGL-Q29.9980.42-5.222.8168.2736.510.213.6367.728.1
3Cisco Systems IncCSCO-Q216.7353.45-8.14173.6742.6516.040.1917.4127.312.2
4Copart IncCPRT-Q41.8743.73-7.7124.2430.9112.930.0234.1655.143.6
5Kinsale Capital Group IncKNSL-N9.7418.69-2.6342.77166.6760.850.2242.5154.260.1
6Vertex Pharmaceuticals IncVRTX-Q91.1352.97-3.8265.2612.4613.520.0527.2816.922.2
7ITT IncITT-N7.9196.4-7.2727.8947.1913.720.2118.8334.918.9
8Synopsys IncSNPS-Q70.16461.31-2.2548.251.7519.20.1269.2743.544.5
9Adobe IncADBE-Q235.93518.2-9.1324.4726.0310.310.2646.674.354
10Flowserve CorpFLS-N5.0538.48-6.18135.2214.7122.460.7921.2643.425.4
11PACCAR IncPCAR-Q45.3186.67-3.7512.6770.0724.060.8312.454331.4
12Cadence Design Systems IncCDNS-Q63.88235.05-5.2833.4519.1213.880.2272.138.546.3
13Regeneron Pharmaceuticals IncREGN-Q88.47814.99-3.8429.8813.7910.530.1121.549.313
14Lululemon Athletica IncLULU-Q46.83370.1-9.0528.618.5818.240.3446.8519.415.50
15Roper Technologies IncROP-Q52.08488.03-4.135.2834.9216.810.444.6528.312.9
16Visa IncV-N480.89231.22-7.7320.112511.660.5329.3423.211.3
17Stantec IncSTN-N7.264.77-6.1621.1743.64190.9433.4334.635.1
18Qualys IncQLYS-Q5.68154.72-222.0941.7914.440.1349.126.237.9
19Intuit IncINTU-Q144.97517.26-7.4110.5915.6612.340.3961.4325.132.9

Source: Trading Central

What we found

Topping our list is Arista Networks Inc. ANET-N, a California-based supplier of cloud networking products that use software to address the needs of Internet companies, cloud service providers and enterprises. The company is trading within 6.38 per cent of its most recent 52-week high. Revenue and EPS growth are at 38.7 per cent and 64.89 per cent, respectively, in the past quarter compared with the same period a year ago. The company has the lowest debt-to-equity ratio on our list at 0.01, which signifies lower interest costs, and resilience to rate increases.

Kinsale Capital Group Inc. KNSL-N, a Virginia-based property, casualty and specialty risk insurer most investors have probably never heard of, reported an EPS growth rate of 166.67 per cent last quarter, the highest on our list. Revenue growth was also the highest on our list at 60.85 per cent last quarter compared with the same period a year ago. What’s most impressive to me is the stock price chart. The stock has been trending higher since breaking to a record high back on June 6, and has not looked back.

It’s essential to note that no strategy is foolproof, and investing in a bear market can still involve risks. Investors must use risk management techniques, such as setting stop-loss orders and maintaining a disciplined approach, to mitigate potential losses. Consulting with a financial adviser or investment professional can provide valuable guidance tailored to your specific financial goals and risk tolerance.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five year historical period with quarterly rebalancing, the screen described had a 10-per-cent annualized return compared with 8 per cent for the S&P 500.

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 01/03/24 7:00pm EST.

SymbolName% changeLast
ANET-N
Arista Networks Inc
+3.68%287.74
KNSL-N
Kinsale Capital Group Inc
+0.21%517.28

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