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What are we looking for?

With the S&P 500 continuing to remain under pressure, we decided to search for defensive U.S. value plays.

The screen

We will be using Trading Central Strategy Builder to search for defensive value stocks that are indicating good quality financial characteristics based on the legendary investor Benjamin Graham’s stock selection criteria.

We begin by setting a minimum market capitalization threshold of US$25-billion to focus on larger, more established companies in the market. Next, we screened for companies that are indicating a price-to-earnings ratio of 25 or less. (The average P/E of the S&P 500 index is currently at 25.2.) We also applied a minimum five-year historical earnings-per-share growth rate of 5 per cent and required a current ratio, a measure of liquidity, of at least 1.2. A current ratio of less than one is a warning sign that the company may have problems meeting its short-term obligations. All companies on the list must pay a dividend so we can be paid to wait in a turbulent market.

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

Our screener ranks the list based on all performance and revenue criteria. Only eight U.S.-listed companies met the strategy criteria.

Topping our list is D.R. Horton Inc., which is the largest home builder in the U.S. based on home closings. The company has the highest current ratio on our list, at 9.6, and the lowest P/E, at 12.9. The company also has the second-highest five-year EPS growth at 23.4 per cent. D.R. Horton’s stock price is above its 50-day moving average in an uptrend, indicating positive relative strength against the broad market; the S&P 500 remains below the same technical indicator.

Computer technology company Oracle Corp. has the highest market cap on our list at US$178-billion. Its stock price has also been able to remain above its 50-day moving average. On Sept. 19, U.S. President Donald Trump said he had given his “blessing” regarding a partnership deal between Oracle, Walmart Inc. and the social-media app TikTok. ByteDance, the owner of TikTok, is now seeking approval in China for the tentative U.S. deal, which could cause some added volatility in Oracle stock.

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.

Select S&P 500 large-cap stocks

RankCompanySymbolMkt. Cap. (US$ Bil.) P/ECurrent RatioDiv. Yld. (%)5Y EPS Grwth. Rate (%)1Y Perf. (%)YTD Perf. (%)Recent Price (US$)
1D.R. Horton Inc.DHI-N25.912.99.61.023.437.234.972.03
2T. Rowe Price GroupTROW-Q27.914.66.02.913.87.50.9123.65
3eBay Inc.EBAY-Q35.518.51.61.3120.629.240.350.93
4BlackRock IncBLK-N82.119.09.32.78.121.07.1538.85
5Marvell TechnologyMRVL-Q25.218.01.30.622.750.841.538.35
6Paccar Inc.PCAR-Q28.217.22.81.612.519.33.281.93
7Cummins Inc.CMI-N30.018.01.42.69.925.813.4204.13
8Oracle Corp.ORCL-N178.018.62.71.66.99.511.358.88

Source: Trading Central

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

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