What are we looking for?
Top-ranked U.S.-listed stocks in underperforming sectors, ripe for a rebound.
The Nasdaq 100, an index comprising the biggest non-financial companies listed on the Nasdaq, has lagged behind the major indexes with a year-to-date return of minus 29 per cent, but it has a history of positive returns in October. The index was on the plus side this month 65 per cent of the time going back 20 years, for an average gain over that period of 1.1 per cent. Will this time be different? No one knows. An improvement in the Nasdaq 100 index may spark renewed buying interest in stocks over all. This week we looked for stocks in the most beaten-down sectors year-to-date, which may be of some interest to bottom fishers.
The screen
We started by screening for U.S. stocks with a market capitalization of at least US$1-billion in the most beaten-down sectors, which are currently technology, real estate, communication services and consumer discretionary.
Next, we searched for stocks demonstrating recent positive price momentum. Five-day price performance must be positive in order to catch stocks showing signs of a price reversal to the upside.
We filtered for the top-ranked stocks using Trading Central’s Quantamental rating method. The TC Quantamental Rating covers more than 50,000 stocks worldwide. This metric ranks stocks on a scale of one to 10, with 10 being the most bullish, one the most bearish. TC Quantamental ranking uses a combination of valuation, growth, quality, price momentum and income as key metrics when ranking a company.
We added a filter for price-to-earnings and dividend yield, which could not be worse than the average of the broad S&P 500 index, which is at 18.4 for P/E, and 2.3 per cent for yield.
Finally, we looked for stocks with a bullish price trend using two “oscillator” tools from the technical analysis toolkit – relative strength index (RSI) and moving average convergence/divergence (MACD). Bullish signals in the RSI and MACD help traders confirm whether a price-trend reversal may be taking place. Bullish oscillators are ranked on a scale of one to five in terms of quality, with five being the best quality signal confirmation.
For informational purposes, we have also included the recent stock price, year-to-date and one-year price returns.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, 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 Avnet Inc., which sells electronic components for the automotive, defence and aerospace industries. The company is an outlier in the technology hardware sector: Even though the sector is down more than 20 per cent year-to-date, the stock itself is down only 5 per cent. The stock has the highest TC Quantamental rating on our list at 7.4 out of 10, which is very strong. The stock has the best five-day price performance on our list at 7 per cent.
Texas Instruments Inc., a global semi-conductor manufacturer, has the highest market cap on our list at US$153.3-billion. The stock is indicating a TC Quantamental rating of 6.3 out of 10, a dividend yield of 3 per cent, and the stock price is only down 12 per cent YTD, outperforming its benchmark Nasdaq index.
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.