What are we looking for?
U.S. large cap stocks that have sold off in the past quarter that are looking to rebound.
Over the past quarter, many U.S. large cap darlings have sold off heavily. Apple Inc., Twitter Inc., Walt Disney Co., Wal-Mart Stores Inc. and others have all declined sharply based on poor earnings, a Chinese economic slowdown, a strong U.S. dollar and other factors. Some large cap stocks now find themselves in oversold territory with a possibility of seeing a strong rebound.
The screen
We will be using Recognia Strategy Builder to search for U.S. large cap stocks that have declined sharply and now look ready to bounce.
We begin by setting a minimum market cap threshold of $10-billion (U.S.). We will also require that all stocks on our screen must have fallen by at least 5 per cent in the past 13 weeks.
To find stocks whose lower prices now look like a good value, we will set a threshold on the forward P/E ratio of less than 25.
Finally, to select stocks that are looking technically oversold, we will use a technical indicator known as Bollinger Bands. We will consider only stocks that have recently pierced their lower Bollinger Band and therefore are trading more than two standard deviations below their 20-day moving average.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
After declining almost 14 per cent in the first seven months of 2015, Procter & Gamble Co. announced fourth-quarter results at the end of July that missed expectations on revenue by more than 5 per cent. The company attributed this decline mainly to foreign exchange headwinds as a result of the strong U.S. dollar. The stock dropped a further 5.7 per cent on the news.
United Technologies Corp. has been in a strong decline since late July when it announced an agreement to sell its Sikorsky Helicopter unit to Lockheed Martin Corp. for $9-billion. The stock is now down over 14 per cent year-to-date and is trading near its two-year lows.
Whole Foods Market Inc. reported lacklustre earnings in July, which have taken a toll on its stock price. Whole Foods has normally traded at a premium valuation. However, as a result of its recent selloff, its forward P/E is just 20.3. On July 30, the stock registered an oversold Bollinger Band signal when the stock price touched $36.08.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.