What are we looking for?
U.S. stocks with solid fundamentals and income to help weather a possible recession.
This week, we built a strategy that screens for U.S.-listed stocks that look attractive from a value, quantitative and income perspective and may be able to weather turbulent times if the recent downtrend in U.S. equities continues into the end of the year.
The screen
We will be using Trading Central Strategy Builder to search for U.S. equities that tend to be more stable in a bear market because of the income, quality and stability they offer.
We begin by setting a minimum market capitalization threshold of US$10-billion in order to screen for stocks that are well-established, which tend to have less risk and volatility than small-cap stocks.
Next, we will select only stocks with price-to-earnings ratios at or below the current P/E of the S&P 500 index, which sits at 20.31.
We were also interested in companies that are indicating a dividend yield that is above the average currently indicated for the S&P 500, which is at about 1.56 per cent, so we can be paid to wait for a rebound amid a bear market.
Finally, we screened for the top-rated stocks using two TC Quantamental factors – income and quality. The income factor rating takes into consideration the stock’s current dividend yield, dividend growth rate and dividend payout ratio. The quality factor group measures the total financial strength of the company with regards to profitability, the robustness of its balance sheet and earnings quality.
We have also included year-to-date and one-year returns for reference.
About us
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, 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 MPLX LP MPLX-N, an oil and gas company that owns, operates and develops crude oil and refined products. The stock has the highest dividend yield on our list, at 8.97 per cent, and the second-lowest P/E on our list, at 8.75. Looking at TC Quantamental factor ratings, the stock has a quality factor rating of 75 out of 100 and an income rating of 66 out of 100, which are very strong.
Bristol-Myers Squibb BMY-N has the largest market cap on our list, at US$124.66-billion. The stock has declined just over 24 per cent from its record high back in December and is currently testing a long-term rising trend line in place since March, 2020, which may be of some interest to value investors. The stock has a dividend yield of 3.82, a P/E of 15.87 and a high TC quality factor rating of 79 out of 100.
Vistra Corp. VST-N, a holding company that operates an integrated retail and electric-power generation business, primarily in the United States, has the best one-year performance on our list, at 33.2 per cent, and is currently trading at an all-time high. The stock has the highest TC quality factor rating on our list, 89 out of 100, which is the highest in the utilities sector.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central with respect to investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is the head of North American research at Trading Central in Ottawa.
Gary Christie