10 Stocks on the Rebound
Alan Brochstein shares his list of stocks worth investigating. 
Stocks have rallied over 18% YTD, but they’re also more than 60% off of the March lows. Always on the hunt for new ideas, I was reviewing a screen that I run every week that attempts to identify stocks that have lagged but are gaining momentum. I call these “rebounders”.
I tweaked my usual screen slightly, adding a balance sheet requirement as described below. Here’s the criteria I used to narrow the list down to a manageable number of opportunities to investigate further:
• Market Cap > $1 billion
• Price/52-week low < 50% (compared to 60% for the market)
• Beating the S&P 500 over the past 4 and 13 week periods
• Positive earnings
• PE
• PEG ratio (PE/long-term growth) < 1.5X
• Earnings estimates falling less than 5% over past 12 weeks
• Net Debt to Capital < 35% (best to be conservative these days!)
Here are the 10 “rebounder” stocks that made the cut:
See a larger version of this table.
The overall list is somewhat diversified, with stocks from four different economic sectors and market caps ranging from my $1 billion minimum all the way up to $178 billion. I am not intimately familiar with most of these companies, but I do have some general observations for each one. Many of these stocks have rebounded less than the market because they fell less than the market.
Roper Industries (ROP) fell less than the market last year and is up slightly more this year (and just barely made the cut-off due to being up almost 50% off the bottom). It’s a broadly diversified engineering firm with products ranging from medical devices, water, energy and radio/frequency applications. They’ve also been focused on improving margins for the past few years. My only knock on this stock is that it’s been a voracious acquirer of other companies.
Watson Wyatt Worldwide (WW) is a leading Human Resources consulting firm with global operations. This stock actually rose in 2008 but has lagged this year until just recently. The company is in the middle of a merger with Towers, Perrin.
Matthews International (MATW) is a company that could bury you – literally, as it is a manufacturer of caskets. I have always been a bit cautious on this one (fear of competition), but I guess it’s true what they say about death and taxes. The company has been around since 1902 and is truly “international”, with almost 1/3 of its sales coming from outside of the U.S. This stock fell less than the market in 2008.
DeVry (DV) is one of the many publicly-traded higher education companies. The industry is always subject to controversy over business practices, and this has flared up again recently with some of the other players. DV operates DeVry University (Business, Technology and Management), Ross University (Medical and Healthcare), Chamberlain College of Nursing and U.S. Education, an acquisition from 2008 of two colleges with 18 campuses focused on healthcare, Becker Professional Education, Advanced Academics (online high school supplementary program) and Fanor in Brazil.
This stock looks inexpensive to me, and I would note that the chart looks quite interesting as well. The stock was up in 2008 and is down just slightly this year.
Alberto Culver (ACV) has interested me for a while. It was unchanged last year and is up just slightly less than the market this year. The company spun out Sally Beauty (SBH) in 2006 after a failed transaction with Regis (RGS) and is now focused on making primarily beauty care products, with some food and household products.
ACV has decent international exposure. The company’s balance sheet stands out among the universe of consumer staples companies, with no debt and cash of almost $500mm.
Pepsico (PEP) is one you probably know. I spent some time with a client recently discussing this one relative to Coke (KO). We liked them both, but the nod went to KO due to its higher international exposure and less exposure to food. Still, it’s hard to see how one can go wrong with this one. The stock fell less than the market last year and is up a bit less this year. The almost 3% dividend isn’t bad either.
Procter & Gamble (PG) has a bit more leverage than the previous two names. It recently divested its prescription drug unit for $3 billion, which will improve it somewhat, but it appears to be on the prowl for a consumer products acquisition. The stock was under pressure early in the year as its premium brands appeared to be losing share to private label goods.
The stock fell only 16% last year, so it’s not surprising that it has lagged in 2009. I am not particularly enamored of this one and would opt for PEP over it.
I wrote favorably about Becton Dickinson (BDX) here recently when I spotlighted the medical device industry. The company reported its fiscal year-end last week, and I liked what I heard. BDX derives over half its sales from devices, with the balance coming from diagnostics and bioscience equipment. The biotech funding crunch really hurt that last business, but the company, which derives half of its sales from overseas, has many other long-term drivers, including devices targeting needs like safety, diabetes, infection control and several others. The stock fell much less than the market last year and has been a laggard until recently this year.
Abbott Labs (ABT) has, to my mind, the right business model, similar to Johnson & Johnson (JNJ). The stock barely fell in 2008. The majority of sales come from pharmaceuticals and biotech, but the company is involved in diagnostics, nutritionals and vascular.
ABT hasn’t been playing the same game as some of its rivals in consolidating the pharmaceutical industry with massive cost-cutting plays. Instead, it has made a few smaller acquisitions in devices. The company has an exciting new stent that is taking market share. ABT seems to me to be one of the healthier big pharma names, and its 3% dividend looks quite sustainable.
Magellan Health Services (MGLN) too didn’t fall too much in 2008 and only recently started to rebound after its last report, effectively forming a double bottom in April and October. The company helps health insurance companies control costs, which seems like a good business these days. It recently closed on a significant acquisition, yet it remains debt-free and loaded with cash.
As I always say, screening is a starting point only for further research. It’s interesting that all of these stocks did better than the market last year but are lagging this year (except for ROP, which is in line). Recently, they have started to do better than the market. I would guess that in general they will hold up better in a downturn and perhaps do better in a sideways market.
I definitely think that some of these ten names deserve more research focus, especially DV and ACV. I would love to hear your thoughts.
Regards,
Alan Brochstein
Founder, Invest By Model
TradeKing All-Star Commentator
Disclosure: Alan is long BDX in both of his model portfolios.
Supporting documentation for any claims made in this post will be supplied upon request. Send a private message to All-Stars using the link below the profile image.
In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Alan Brochstein maintains a cross-marketing relationship with TradeKing.
Stocks have rallied over 18% YTD, but they’re also more than 60% off of the March lows. Always on the hunt for new ideas, I was reviewing a screen that I run every week that attempts to identify stocks that have lagged but are gaining momentum. I call these “rebounders”.
I tweaked my usual screen slightly, adding a balance sheet requirement as described below. Here’s the criteria I used to narrow the list down to a manageable number of opportunities to investigate further:
• Market Cap > $1 billion
• Price/52-week low < 50% (compared to 60% for the market)
• Beating the S&P 500 over the past 4 and 13 week periods
• Positive earnings
• PE
• PEG ratio (PE/long-term growth) < 1.5X
• Earnings estimates falling less than 5% over past 12 weeks
• Net Debt to Capital < 35% (best to be conservative these days!)
Here are the 10 “rebounder” stocks that made the cut:
See a larger version of this table.
The overall list is somewhat diversified, with stocks from four different economic sectors and market caps ranging from my $1 billion minimum all the way up to $178 billion. I am not intimately familiar with most of these companies, but I do have some general observations for each one. Many of these stocks have rebounded less than the market because they fell less than the market.
Roper Industries (ROP) fell less than the market last year and is up slightly more this year (and just barely made the cut-off due to being up almost 50% off the bottom). It’s a broadly diversified engineering firm with products ranging from medical devices, water, energy and radio/frequency applications. They’ve also been focused on improving margins for the past few years. My only knock on this stock is that it’s been a voracious acquirer of other companies.
Watson Wyatt Worldwide (WW) is a leading Human Resources consulting firm with global operations. This stock actually rose in 2008 but has lagged this year until just recently. The company is in the middle of a merger with Towers, Perrin.
Matthews International (MATW) is a company that could bury you – literally, as it is a manufacturer of caskets. I have always been a bit cautious on this one (fear of competition), but I guess it’s true what they say about death and taxes. The company has been around since 1902 and is truly “international”, with almost 1/3 of its sales coming from outside of the U.S. This stock fell less than the market in 2008.
DeVry (DV) is one of the many publicly-traded higher education companies. The industry is always subject to controversy over business practices, and this has flared up again recently with some of the other players. DV operates DeVry University (Business, Technology and Management), Ross University (Medical and Healthcare), Chamberlain College of Nursing and U.S. Education, an acquisition from 2008 of two colleges with 18 campuses focused on healthcare, Becker Professional Education, Advanced Academics (online high school supplementary program) and Fanor in Brazil.
This stock looks inexpensive to me, and I would note that the chart looks quite interesting as well. The stock was up in 2008 and is down just slightly this year.
Alberto Culver (ACV) has interested me for a while. It was unchanged last year and is up just slightly less than the market this year. The company spun out Sally Beauty (SBH) in 2006 after a failed transaction with Regis (RGS) and is now focused on making primarily beauty care products, with some food and household products.
ACV has decent international exposure. The company’s balance sheet stands out among the universe of consumer staples companies, with no debt and cash of almost $500mm.
Pepsico (PEP) is one you probably know. I spent some time with a client recently discussing this one relative to Coke (KO). We liked them both, but the nod went to KO due to its higher international exposure and less exposure to food. Still, it’s hard to see how one can go wrong with this one. The stock fell less than the market last year and is up a bit less this year. The almost 3% dividend isn’t bad either.
Procter & Gamble (PG) has a bit more leverage than the previous two names. It recently divested its prescription drug unit for $3 billion, which will improve it somewhat, but it appears to be on the prowl for a consumer products acquisition. The stock was under pressure early in the year as its premium brands appeared to be losing share to private label goods.
The stock fell only 16% last year, so it’s not surprising that it has lagged in 2009. I am not particularly enamored of this one and would opt for PEP over it.
I wrote favorably about Becton Dickinson (BDX) here recently when I spotlighted the medical device industry. The company reported its fiscal year-end last week, and I liked what I heard. BDX derives over half its sales from devices, with the balance coming from diagnostics and bioscience equipment. The biotech funding crunch really hurt that last business, but the company, which derives half of its sales from overseas, has many other long-term drivers, including devices targeting needs like safety, diabetes, infection control and several others. The stock fell much less than the market last year and has been a laggard until recently this year.
Abbott Labs (ABT) has, to my mind, the right business model, similar to Johnson & Johnson (JNJ). The stock barely fell in 2008. The majority of sales come from pharmaceuticals and biotech, but the company is involved in diagnostics, nutritionals and vascular.
ABT hasn’t been playing the same game as some of its rivals in consolidating the pharmaceutical industry with massive cost-cutting plays. Instead, it has made a few smaller acquisitions in devices. The company has an exciting new stent that is taking market share. ABT seems to me to be one of the healthier big pharma names, and its 3% dividend looks quite sustainable.
Magellan Health Services (MGLN) too didn’t fall too much in 2008 and only recently started to rebound after its last report, effectively forming a double bottom in April and October. The company helps health insurance companies control costs, which seems like a good business these days. It recently closed on a significant acquisition, yet it remains debt-free and loaded with cash.
As I always say, screening is a starting point only for further research. It’s interesting that all of these stocks did better than the market last year but are lagging this year (except for ROP, which is in line). Recently, they have started to do better than the market. I would guess that in general they will hold up better in a downturn and perhaps do better in a sideways market.
I definitely think that some of these ten names deserve more research focus, especially DV and ACV. I would love to hear your thoughts.
Regards,
Alan Brochstein
Founder, Invest By Model
TradeKing All-Star Commentator
Disclosure: Alan is long BDX in both of his model portfolios.
Supporting documentation for any claims made in this post will be supplied upon request. Send a private message to All-Stars using the link below the profile image.
In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Alan Brochstein maintains a cross-marketing relationship with TradeKing.
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