What are we screening for?
Undervalued North American large-cap industrial stocks.
The Screen
The S&P 500 index barely budged during Monday’s session, with 274 issues advancing, 227 issues declining, and two remaining unchanged, signalling that investors are tepid heading into a potential turbulent week. With the U.S presidential election, and the U.S. Federal Reserve set to announce its interest rate decision on Nov. 7, equity markets could be in store for increased volatility.
According to LSEG data that calculates odds using interest rate derivatives, there is a 98.5-per-cent probability that the Fed will cut rates by a quarter-percentage-point this week. A rate cut could provide equity markets with a boost – S&P 500 is already up more than 20 per cent this year, although some sectors may see more enthusiasm than others. Of the 11 sectors in the index the industrial sector is the largest by company count at 78, and includes notable names such as Boeing Co. and General Electric Co., which could be directly affected by the events taking place this week. Today we screen for undervalued North American industrial companies.
- First, we screen for North American-listed industrial companies with a market capitalization greater than US$1-billion.
- Next, we screen for companies demonstrating strong recent value and momentum characteristics. We use the LSEG Starmine Value Momentum model to screen for companies with a score greater that 95, representing the top 5 per cent of companies. The value momentum model is a percentile ranking of stocks based on recent valuation and momentum characteristics such as analysts estimates, historical stock returns, and earnings-per-share growth rates, with 100 representing the highest rank.
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What We Found
The screen, ranked by StarMine Value-Momentum Model, produced 10 companies listed in the United States.
ZIM Integrated Shipping Services Ltd. ZIM-N scored 100 on the StarMine Value-Momentum model, while also delivering the highest one-year total return in the screen. ZIM is an Israel-based global container liner shipping company with operations in over 90 countries servicing more than 32,000 customers. ZIM covers major trade routes and focuses on select markets where the company has competitive advantages, leveraging their modern fleet which includes 28 LNG-powered container ships.
The shipping industry has faced numerous headwinds over the past year which have caused freight rates to surge and global shipping lanes to be rerouted, and the recent port strike on the East Coast of the U.S. demonstrated how vital and integrated shipping markets are to the North American economy. While freight rates have softened in recent months, the avoidance of the Red Sea is expected to remain in place for much of 2025, which should keep ZIM’s fleet utilization high and boost profitability.
AerCap Holdings NV AER-N, which scored 97 on the StarMine Value-Momentum model, is an Ireland-based company engaged in aviation leasing. The company is the world’s largest owner of commercial aircraft, engines, and helicopters, with more than 1,700 aircraft and 300 helicopters in its fleet, and an order book of 393 of the most in-demand aircraft in the world.
The company released their third-quarter results in September, reporting net income of US$375-million across 226 total transactions, with a utilization rate of 99 per cent, representing the highest levels since the COVID-19 pandemic.
AerCap has been affected by the current strike at Boeing, which has resulted in the company pushing deliveries for eight Boeing Max aircraft from 2024 into 2025, and subsequently 2026, while also pushing deliveries for 15 Airbus A320neo aircraft from 2025 to 2026. Despite these challenges, management raised full-year 2024 earnings-per-share guidance from to US$10.70 from US$10.25, signalling there should be some tailwinds ahead.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a Sales Specialist covering commodity markets at LSEG.