What are we looking for?
The Dow Jones Industrial Average reached a record high this week, breaking above a range that was in place since late February. In terms of U.S. sector strength, the Industrial Select Sector SPDR Fund ETF (XLI) has increased by approximately 3.23 per cent over the past week, emerging as the top-performing sector, closely followed by the consumer discretionary and financial sectors. Given this momentum, we decided to explore U.S. industrial stocks that appear compelling from quantitative, trend-following and earnings-growth perspectives.
The screen
Utilizing Trading Central Strategy Builder, we began our search for U.S. industrial stocks by concentrating on companies with a market capitalization exceeding US$5-billion. This criterion aimed to narrow down our results to include only the largest and most established stocks within the sector.
In order to prioritize well-valued companies, we’ve opted to consider only those with price-to-earnings ratios of 24 or less. It’s worth noting that the average P/E ratio of companies listed in the Dow Jones stands at approximately 24.41.
We screened for U.S industrial stocks that had EPS growth of at least 10 per cent last quarter compared with the same quarter a year ago in order to identify companies with strong profitability trends and promising growth potential.
To identify companies efficiently utilizing shareholder equity to generate profits, we sought a minimum return on equity (ROE) of 10 per cent over the past year, reflecting sound financial management and promising investment prospects.
Finally, we established a minimum rating of 55 out of 100 using Trading Central’s Quantamental rating, which evaluates stocks on a scale of 1 to 100, with 100 indicating the most bullish and 1 the most bearish sentiment. TC Quantamental ranking incorporates a blend of valuation, growth, quality, price momentum and income metrics as essential criteria when assessing a company’s ranking.
For informational purposes, we have also included the recent stock price, year-to-date and one-year return.
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
Topping our list is Oshkosh Corp. OSK-N, a U.S. industrial firm specializing in the design and manufacture of custom trucks, military vehicles, truck bodies, airport fire apparatus and access equipment. The stock has the lowest P/E on our list at 13.05 despite trading at a new 52-week high as the stock trends higher. Debt/equity is the second-lowest on our list at 0.21.
Huntington Ingalls Industries Inc. HII-N, the largest military shipbuilding company in the United States, has the Highest TC Quantamental Rating on our list at 68, fuelled by robust ratings in quality and momentum factors. Despite nearing its record high set on March 5, the stock currently hovers around 2 per cent below this peak.
A.O. Smith Corp. AOS-N, the largest manufacturer and marketer of water heaters and boilers in North America, has the highest EPS growth on our list at 144.37 per cent. The U.S. company also has the lowest debt/equity on our list at just 0.08. The stock price continues to trend higher, posting a record high at the time of this writing.
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.
Gary Christie