It's been a heady week for the main US stock indexes, buffeted by housing prices, GDP reports and jobless claims, not to mention the ongoing speculation circling the Federal Reserve's stimulus plans. But on Thursday the Standard & Poor's 500 index saw roughly 6.5 billion shares traded, an increase of 3.7% compared to its three-month average. So we decided to search for some winning stocks among the S&P 500's constituents.
We began by screening the S&P 500 for 5-year projected Earnings-per-share growth above 15%, a signal that investors see strong long-term growth potential.
We then limited our search to rallying stocks, which can also trigger positive sentiments. Specifically we ran a screen for stocks that are trading above their 20-day, 50-day, and 200-day moving averages (MA), indicating that these stocks have strong upward momentum.
This left us with three companies on our list below. We decided to also look at their price-to-earnings ratios, specifically Forward Price to Earnings (Forward P/E), Price to Free Cash Flow (P/FCF) and Price to Book (P/B) ratios
Forward P/E ratios below P/E ratios normally suggest that earnings are expected to grow in the near future.
P/FCF = Market Capitalization / Free Cash Flow
P/B = Stock Price / (Total Assets – Intangible Assets and Liabilities)
On average, stocks with a P/FCF under 15 and P/B under 1 are considered undervalued.
For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.
Do you see further upside to these S&P 500 stocks? Use the list and data below as a starting point for your own analysis.
1. Goodyear Tire & Rubber Co. (GT): Engages in the development, manufacture, distribution, and sale of tires, and related products and services to consumer and commercial customers worldwide.
- Market cap at $3.88B, most recent closing price at $15.82
- EPS next 5 years: 41.00%
- 20 day MA: 16.11%
- 50 day MA: 22.11%
- 200 day MA: 23.22%
- P/E: 19.29
- Forward P/E: 6.40
- P/FCF: N/A
- P/B: 7.26
GT has recorded great gains over the last month, and its rally outshines its closest competitors. The stock returned 21.64% since 4/29/13, better than Berry Plastics Group, Inc. (BERY) and Titan International Inc. (TWI), which returned 12.69% and 9.10% during the same holding period.
The company's earnings growth looks weak, with EPS growing by -37.45% over the last year. This is considerably weaker than competitors like BERY (EPS growth over the last year at 100.67%) and TWI (EPS growth over the last year at 55.43%).
On the other hand, GT has a higher than average projected earnings growth rate over the next 5 years (41.0%). This is higher than Carlisle Companies Inc. (CSL) (projected EPS growth over next 5 years at 12.0%) and Cooper Tire & Rubber Co. (CTB) (projected EPS growth over next 5 years at 8.60%).
The stellar performance comes in spite of a lawsuit from employees at the Arizona Department of Corrections, who allege that a tire on the van they were driving in, manufactured by the company, caused the van to lose control and roll over. The plaintiffs cite tread loss, a problem that plagued GT competitor Bridgestone Corporation's subsidiary Firestone Tire and Rubber Company in the past.
The rally is also in defiance of analysts who are not so optimistic about GT. Recently, on 4/26/2013 Bank of America downgraded GT from neutral to under perform and on 4/15/2013 Zacks downgraded the stock from neutral to under perform. More recently, On 5/28/13 Merrill Lynch boosted target price from $10 to $11, still well below current levels.
2. E*TRADE Financial Corporation (ETFC): Provides online brokerage and related products and services primarily to individual retail investors in the United States.
- Market cap at $3.38B, most recent closing price at $11.80
- EPS next 5 years: 27.50%
- 20 day MA: 5.55%
- 50 day MA: 11.22%
- 200 day MA: 22.38%
- P/E: N/A
- Forward P/E: 19.99
- P/FCF: 8.10
- P/B: 0.68
ETFC has recorded a solid performance over the last month, returning 13.97% since 4/29/13. This performance has eclipsed the likes of Morgan Stanley (MS) and CME Group Inc. (CME), but lagged The Charles Schwab Corporation (SCHW), which returned 17.95% during the same holding period.
The company's earnings growth looks weak, with EPS growing by -172.87% over the last year. This is considerably weaker than competitors like Nomura Holdings, Inc. (NMR) (EPS growth over the last year at 803.08%) and SCHW (EPS growth over the last year at -1.49%).
E*TRADE has a higher than average projected earnings growth rate over the next 5 years (27.50%). This is better than the likes of MS (projected EPS growth over next 5 years at 9.0%) and NMR (projected EPS growth over next 5 years at 0.0%).
While analysts have shown optimism for E*TRADE, it seems the rally has been a bit overenthusiastic. Shares currently trade in the $11.80 range, above the target price of $11 per share recently set by Macquarie (up from $10) and Keefe, Bruyette, & Woods (up from $9.50) on 5/21 and 5/20, respectively. Although Sterne Agee was more optimistic, and on 5/15 reiterated a buy rating with a target price of $13.00 (previously $12.00).
In recent news, along with some of its major competitors, E*TRADE is adding a new tool to its brokerage site – stock options. Normally reserved to traders on Wall Street, options allow buyers the ability to buy or sell at pre-set prices in the future. As The New York Times reports, the returns average investors can achieve through these means have yet to impress.
3. Bank of America Corporation (BAC): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally.
- Market cap at $149.09B, most recent closing price at $13.83
- EPS next 5 years: 16.23%
- 20 day MA: 5.82%
- 50 day MA: 10.28%
- 200 day MA: 28.42%
- P/E: 44.61
- Forward P/E: 10.72
- P/FCF: 5.67
- P/B: 0.63
BAC has performed in line with the rest of its industry since 4/29/13, returning 8.89% over the last month. This performance has been better than Wells Fargo & Company (WFC) and Mitsubishi UFJ Financial Group, Inc. (MTU), but worse than industry leaders like JPMorgan Chase & Co. (JPM) and Citigroup, Inc. (C), which returned 11.75% and 11.69% respectively.
Unlike the other names on this list, Bank of America reported strong earnings growth over the last year, with EPS growing by 3006.35%, higher than competitors like JPM (EPS growth over the last year at 16.05%) and C (EPS growth over the last year at -30.60%).
BAC has a higher than average projected earnings growth rate over the next 5 years (16.23%). This is above industry peers such as JPM (projected EPS growth over next 5 years at 6.31%) and MTU (projected EPS growth over next 5 years at -0.80%).
Currently trading just below $14 per share, BAC has little expectation for growth (or decline) according to some of its more recent analyst ratings: On 5/29/2013 Zacks reiterated rating of neutral and maintained a $14.00 target price. On 5/28/2013 Bernstein reiterated a market perform rating and a target price of $13.00. On 5/23/2013 Guggenheim boosted target price to $15.50 from $14.50. And on /15/2013 Deutsche Bank reiterated a hold and increased target price to $13 from $11.
BAC will not be able to avoid a lawsuit brought by a mortgage-bond trustee requesting the repurchase of home loans, as ruled by the New York State Supreme Court in Manhattan. The loans in question back $1.75B in securities, and the suit argues that the underlying loans were not on par with their stated quality, as reported by Wall St. Cheat Sheet.
*All data sourced from Finviz.