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What are we looking for?

U.S. consumer cyclical stocks with attractive valuations and price momentum.

July is historically a positive month for U.S. equities. Looking at data from the past 20 years, the S&P 500 index has closed higher at the end of July 74 per cent of the time, with an average return of 2.2 per cent. In anticipation of another positive month for U.S. stocks, we looked for more opportunities in the consumer cyclical/discretionary sector, which has been outperforming all other sectors over the past three months with the Consumer Discretionary Sector SPDR ETF (XLY) gaining 16.5 per cent, followed closely by the Technology Sector SPDR ETF (XLK) at 16.35 per cent. The sector has also been outperforming the broad S&P 500 index on a relative basis since the start of June.

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The screen

We used Trading Central Strategy Builder to search for US. consumer cyclical stocks with strong earnings and price momentum, trading within 10 per cent of their 52-week highs.

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

Next we screened for companies that have a price/earnings ratio no higher than 12. The average P/E of the S&P 500 Consumer Discretionary Sector index is 31.36.

We also applied a minimum five-year historical earnings-per-share growth rate of 20 per cent in order to screen for stocks with a long-term track record of increasing their earnings.

Finally, we filtered for U.S. consumer discretionary stocks that have a TC Quantamental rating of 50 or higher. The TC Quantamental Rating® is a proprietary stock rating methodology developed by Trading Central. This metric rates stocks on a scale of 0 to 100 with 100 being the most bullish and 0 being the most bearish. TC Quantamental rating uses a combination of valuation, growth, quality, price momentum and income as key metrics when ranking a company.

We have also included the dividend yield, five-day price performance, year-to-date and one-year return 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.

What we found

Outperforming U.S. cyclical stocks

RANK COMPANYTICKERSECTOR & INDUSTRYRECENT PRICE ($)MKT.CAP. ($Bil) P/E5Y AVG. EPS GRTH (%)TC QUANT.RATING5D PERF. (%)YTD PERF. (%)1Y PERF. (%)DIV.YLD. (%)% CHG.52W.HIGH
1PulteGroup IncPHM-NHomebuilding & Construction77.1817.566.750.260.002.670.7096.300.82-1.80
2Asbury Automotive Group IncABG-NVehicles & Parts240.995.085.746.553.006.434.4038.30n/a-5.00
3Taylor Morrison Home CorpTMHC-NHomebuilding & Construction47.525.095.143.966.000.657.20107.30n/a-1.83
4Toll Brothers IncTOL-NHomebuilding & Construction77.878.576.328.064.003.157.4077.701.07-1.16
5AutoNation IncAN-NVehicles & Parts164.67.276.740.554.008.252.9040.70n/a-0.05
6Lennar CorpLEN-NHomebuilding & Construction124368.636.056.003.138.6080.201.2-1.28
7Penske Automotive Group IncPAG-NVehicles & Parts166.3611.269.221.052.005.944.0050.401.59-0.25
8Boyd Gaming CorpBYD-NTravel & Leisure68.216.8B10.729.161.000.225.1034.900.94-4.85
9Murphy USA IncMUSA-NRetail - Cyclical297.146.3211.132.950.002.66.3027.700.51-8.01

Source: Trading Central

Of the nine stocks that met our criteria, four are in the homebuilding and construction industry, three are in the vehicles and parts industry, one in travel and leisure, and one in the retail cyclical sector.

Topping our list is U.S homebuilder PulteGroup Inc. PHM-N The stock has the largest market cap on our list at US$17.5-billion, and low P/E of 6.7. The company’s five-year average EPS growth rate is at 50.2 per cent, the highest on our list, and grew 28.4 per cent last quarter compared with the same period a year ago. The stock has a TC Quantamental rating of 60 out of 100, which is strong. PulteGroup has the best year-to-date return on our list at 96.3 per cent and is trading within 1.8 per cent of a new 52-week high.

Taylor Morrison Home Corp., TMHC-N a land developer and homebuilder, has the lowest P/E on our list at just 5.1, despite having the best one-year price performance on our list at 107.3 per cent. The company also has the highest TC Quantamental Rating on our list at 66 out of 100. The stock remains in a well-defined uptrend trading within 1.8 per cent of its 52-week high.

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 15/04/24 7:00pm EDT.

SymbolName% changeLast
PHM-N
Pultegroup
-1.89%108.79
TMHC-N
Taylor Morrison Home Corp
-1.99%55.66

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