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What are we looking for?

Large-cap U.S.-listed stocks that have sold off strongly in the past week despite growing earnings and reasonable valuations.

The past week has been a tough ride for U.S. equity investors as the markets have sold off dramatically. The U.S. markets began their downward turn late last week when the U.S. jobs report showed unemployment at its lowest level since 1969. Job gains for the month of August also received a sharp upward revision. Bond investors, worried about surging inflation, pushed bond prices down and yields up to levels not seen since 2011. All of this had a devastating effect on equity markets with the Dow Jones Industrial Average, S&P 500 and Nasdaq all down 5 per cent or more. Might this be an ideal time for bullish long-term investors to swoop in to buy shares of great companies at a discount?

The screen

We will be using Trading Central Strategy Builder in our search. We start by screening for U.S.-listed stocks with a market capitalization of at least US$10-billion. We wish to focus on corporate giants with consistent revenue and stable long-term businesses.

Next, we will search for stocks that have reasonable valuations. We will filter and include only stocks with trailing price-to-earnings ratios of 20 or less as of the close of trading on Oct. 10. To find stocks with profitable operations and a track record of growing earnings, we will include only stocks with a five-year historical growth rate in earnings per share of at least 10 per cent each year.

Finally, to find the companies that have been beaten down the most in the recent sell-off, we will also filter to include only stocks that are down 10 per cent or more in the past five trading sessions and trading off at least 20 per cent from their 52-week highs.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.

What we found

Chip-equipment maker Applied Materials Inc. tops our list with a P/E of 10.4 and five-year EPS growth rate of 123.9 per cent. As investors shunned risky assets in the recent sell-off, technology stocks such as Applied Materials were hit harder than the market over all. Applied Materials is down 11.5 per cent in the past five sessions and trading almost 45 per cent below its 52-week high.

The lowest P/E ratio on our list belongs to International Paper Co. at just 6.1. The stock has lost 10 per cent of its value in the past five days, is down almost 25 per cent year-to-date and 35 per cent below its 52-week high, on concerns about oversupply in the paper products market and the continuing U.S. trade dispute with China.

The largest company on our list is BlackRock Inc. with a market cap of more than US$73-billion. Its shares hit a 52-week high back in January and have since slid by 28.2 per cent. The stock dropped more than 7 per cent on Oct. 10 as investors fretted over how the stock market meltdown would affect the profitability of asset managers such as BlackRock. The company now finds itself with an attractive P/E of just 12.9 and a forward dividend yield of 2.7 per cent.

The investment ideas presented below 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.

Stable long-term businesses that have sold off significantly

Rank Company Ticker Share Price (US$) Oct. 10 Close Market Cap. (US$Bil) P/E (TTM) EPS Growth (5-Yr Historical) 5-Day Price Performance % Chg. from 52-Wk High Div. Yield
1 Applied Materials Inc. AMAT-Q 34.14 35.11 10.4 123.9% -11.5% -44.8% 2.2%
2 International Paper Co. IP-N 44.05 18.25 6.1 43.4% -10.0% -35.0% 3.9%
3 United Rentals Inc. URI-N 145.63 12.64 8.0 114.0% -12.5% -24.1% 0.0%
4 Eastman Chemical Co. EMN-N 83.82 12.26 7.9 40.3% -13.5% -25.1% 2.5%
5 Magna International Inc. MGA-N 47.20 16.79 7.2 14.4% -11.9% -29.9% 2.6%
6 BlackRock Inc. BLK-N 424.34 73.36 12.9 18.8% -10.0% -28.2% 2.7%
7 PVH Corp. PVH-N 125.18 10.33 14.1 32.5% -10.1% -26.3% 0.1%
8 Stanley Black & Decker Inc. SWK-N 131.43 20.61 19.5 22.1% -11.3% -26.3% 1.9%

 Source: Trading Central

Peter Ashton is vice-president of customer success at Trading Central.