What are we screening for?
U.S.-listed industrial companies with forecast long-term growth rates.
The screen
After reaching a new all-time high on Friday, Feb. 2, the S&P 500 retreated Monday after comments from U.S. Federal Reserve chair Jerome Powell that more evidence would be needed to lower interest rates. While the sentiment on rate changes remains a hot topic, several economic indicators are pointing to a strong, resilient economy in the United States, including the January jobs report, which added 353,000 new jobs, and unemployment, which remained unchanged at 3.7 per cent.
If the U.S. economy sustains this momentum, the Fed could decide to keep interest rates unchanged late into this year. The OECD, an intergovernmental organization, is forecasting that the Fed could begin cutting rates in the second quarter of 2024. The OECD is now expecting the U.S. economy to grow 2.1 per cent this year, up from its November forecast of 1.5 per cent. With this tailwind and a positive outlook on the economy, some sectors could see continued growth as we move through 2024.
Today we screen for U.S.-listed industrial stocks demonstrating strong future growth rates.
First, we screen for companies with a market capitalization greater than US$1-billion.
Next, we screen for companies with strong forecast future growth rates. We use the StarMine Intrinsic Valuation Model to screen for companies with a price-to-intrinsic-valuation score of at least 90. The Intrinsic Valuation Model is a percentile ranking of stocks based on a dividend discount model valuation, with 100 representing the highest rank. The dividend discount model is a valuation method based on the theory that a stock is worth the sum of all future dividend payments.
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What we found
The screen, ranked by StarMine Intrinsic Valuation Rank, produced eight companies across the industrial sector.
Danaos Corp. DAC-N, which ranked highest, with a score of 100 in the Intrinsic Valuation Rank, is one of the largest independent owners of modern containerships. The company has a fleet of 68 container vessels and seven capesize dry bulk vessels. It is investing in new vessels to modernize its fleet and reduce emissions. The container market saw modest improvements in 2023; however, freight rates remained near break-even owing to excess vessel supply. With the recent disruptions in the Red Sea, container traffic through the Suez Canal is down more than 35 per cent, causing freight rates to spike. Vessel traffic through the canal is expected to normalize in the second half of this year, which should help Danaos, given the current imbalance in the container market. Danaos reported a fleet utilization rate of 97.3 per cent in 2022 and operating expenses 10 per cent lower than the industry average, demonstrating its operational excellence during a challenging year. The company will be announcing its fourth-quarter earnings for 2023 on Monday.
Delta Air Lines Inc. DAL-N, which scored 96 on the Intrinsic Valuation Rank, was one of five passenger airlines to make the screen. Delta operates more than 4,000 flights daily to more than 280 destinations and is prioritizing free cash flow and debt reduction as it recovers from the sharp decline in air traffic in 2020. The company announced its fourth-quarter and full-year earnings for 2023 in January, delivering results that were above analysts’ expectations. Management highlighted that demand for both domestic and international routes remains strong through spring break and expects first-quarter revenue to be up 3 per cent to 6 per cent year-over-year, providing further evidence that the economic outlook remains strong. Volatile commodity prices and increased maintenance costs are areas that could affect the company’s bottom line in 2024.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a senior customer learning manager at LSEG, covering cross-asset trading for the LSEG Academy.