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Top S&P 500 stocks to watch

With 16% of S&P 500 companies having reported, 78% have beaten EPS expectations and 60.8% have beaten sales expectations. Earnings results have also dominated the performances of recent stocks with Netflix (NFLX) being the biggest loser after it reported its weakest subscriber expansion in three years and cut subscriber guidance drastically.

bg_us stocks new 3
Source: Bloomberg

The steady rise in the Baker Hughes drill rig count seems to have been a positive for energy infrastructure firms Williams Co (WMB) and Kinder Morgan (KMI), despite the pullback in the spot price hitting other energy names such as Diamond Offshore (DO) and Hess Corp (HES). Positive US economic data and the possibility of Fed rate hikes this year alongside better than expected bank earnings is also helping a number of financial names, such as Metlife (MET), Bank of America (BAC) and State Street (STT).

NAME

5 Day

1 Month

YTD

NAME

5 Day

1 month

YTD

WILLIAMS COS INC

14.2

6.0

-2.8

HELMERICH & PAYN

-4.6

-1.1

24.3

KINDER MORGAN IN

10.8

18.9

47.1

CBS CORP-B

-5.1

2.8

16.7

MOSAIC CO/THE

8.3

-1.2

4.0

GENUINE PARTS CO

-5.2

2.3

16.1

WESTROCK CO

8.0

6.9

4.3

HUNT (JB) TRANS

-5.3

-2.6

10.1

KANSAS CITY SOUT

6.7

6.0

30.5

MARATHON OIL

-5.5

0.9

17.2

KELLOGG CO

6.7

15.7

20.4

WW GRAINGER INC

-5.5

-4.8

7.5

EBAY INC

5.5

9.1

-3.6

DEVON ENERGY CO

-5.7

-2.6

18.0

METLIFE INC

5.4

-3.6

-10.9

SOUTHWESTRN ENGY

-5.7

-12.0

88.3

BANK OF AMERICA

5.3

-0.6

-15.3

TRANSOCEAN LTD

-5.8

6.2

-2.3

STATE ST CORP

5.0

-7.0

-13.4

HASBRO INC

-6.0

-6.8

20.4

LEGG MASON INC

5.0

-5.5

-16.3

ANADARKO PETROLE

-6.2

-2.5

10.9

CSX CORP

4.7

6.9

9.1

HESS CORP

-6.7

-8.9

15.7

LINCOLN NATL CRP

4.6

-4.8

-13.8

DIAMOND OFFSHORE

-6.9

-6.6

15.3

COMERICA INC

4.6

-2.8

7.1

NRG ENERGY

-7.2

-18.2

24.4

MONSANTO CO

4.4

-0.5

8.5

NETFLIX INC

-10.6

-14.1

-25.0

 

Sectors

We are seeing an interesting sector rotation in the US as investors cutting out of safe havens in utilities and consumer staples (-0.8% and -0.7% on the week, respectively). While Microsoft’s strong earnings have helped accelerate the rotation back into IT stocks, which gained 2.7% on the week.

Sector

5  Day Return

1 Month Return

YTD Return

IT

2.7

5.9

4.9

Utilities

-0.8

2.8

19.5

Healthcare

1.0

5.8

3.5

Industrials

0.9

4.6

10.3

Financials

1.3

3.8

-0.9

Consumer Staples

-0.7

3.2

9.5

Telecoms

-0.1

4.5

21.5

Materials

1.4

2.7

11.9

Consumer Disc.

0.5

3.5

4.1

Energy

-0.4

2.1

15.0

SPX Index

1.0

4.3

6.3

 

Style Factors

A similar story is playing out in style factors with minimum volatility seeing the worst performance over the past week. While quality has outperformed, while growth and large caps have followed closely behind.

Sector

5 Day Return

1 Month Return

YTD Return

Value

0.5

3.9

8.7

Growth

0.6

3.9

4.3

Size

0.4

3.5

7.1

Momentum

0.5

4.4

7.1

Quality

0.8

3.9

4.1

Yield

0.2

4.1

12.8

Minimum Volatility

0.0

4.8

13.1

Small Caps

0.1

3.5

8.4

Mid Cap

0.2

3.1

7.2

Large Cap

0.6

4.0

6.4

MSCI USA

0.5

3.9

6.5

 

Consensus Price Targets

Transocean continues to trade way above consensus price targets although it has pulled back alongside the spot oil price over the past week. In general commodity related firms make up many of the top companies that are trading above their consensus PTs. The GAP is an interesting one, the analyst community is still incredibly bearish on the stock, but its Old Navy brand has been proving far more successful than many had expected. GAP’s stock popped 7% when it reported positive like-for-like sales for June earlier this month.

Stock Ticker

Name

Percentage Above Consensus Target Price

RIG US

TRANSOCEAN LTD

41.2

GPS US

GAP INC/THE

16.4

OKE US

ONEOK INC

16.0

CAT US

CATERPILLAR INC

14.6

DNB US

DUN & BRADSTREET CORP

14.6

DO US

DIAMOND OFFSHORE DRILLING

14.5

HSY US

HERSHEY CO/THE

14.5

MOS US

MOSAIC CO/THE

14.3

NI US

NISOURCE INC

14.2

HCP US

HCP INC

14.1

 

The stocks that are trading well below consensus price targets are dominated by firms bedevilled by company specific risk. Endo International and Alexion (whose earnings are wholly based off one of the most expensive drugs around) are both previously loved biotech companies that are all getting a much closer run over in the wake of the Valeant collapse.

Stock Ticker

Name

Percentage Below Consensus Target Price

ENDP US

ENDO INTERNATIONAL PLC

-38.3

ALXN US

ALEXION PHARMACEUTICALS INC

-29.8

SIG US

SIGNET JEWELERS LTD

-29.5

FSLR US

FIRST SOLAR INC

-29.5

RCL US

ROYAL CARIBBEAN CRUISES LTD

-27.2

DAL US

DELTA AIR LINES INC

-25.9

AMG US

AFFILIATED MANAGERS GROUP

-25.7

HBI US

HANESBRANDS INC

-25.5

MNK US

MALLINCKRODT PLC

-25.1

CSRA US

CSRA INC

-24.1

 

Value Screens

Since the “value” factor has really started gaining some momentum as investors look to take part in the market rally, but are looking to do so in stocks that are not looking too “overvalued”. These screens both have robust backtested results with 15% or higher average annual returns (depending on your sample period used).

Let’s start with Joel Greenblatt’s “Magic Formula” which is a simple equal-weight of earnings yield (the inverse of the P/E ratio) and return on invested capital (ROIC). I’ve given it a 70/30 weight towards earnings yield to weight “value” higher.

The oil price surge of the past few months has really turned investors against airline stocks, as you can see with Delta, Alaska and United airlines all looking fairly compelling in valuation terms.

Stock Ticker

Earnings Yield

ROIC

70/30 Score

MARRIOTT INTL-A

0.07

1.40

0.47

GILEAD SCIENCES

0.19

0.63

0.33

FORD MOTOR CO

0.44

0.06

0.32

DELTA AIR LI

0.28

0.41

0.32

ALASKA AIR GROUP

0.24

0.45

0.30

UNITED CONTINENT

0.28

0.29

0.28

MICHAEL KORS HOL

0.16

0.52

0.27

BEST BUY CO INC

0.27

0.27

0.27

ACCENTURE PLC-A

0.08

0.71

0.27

REYNOLDS AMERICA

0.15

0.54

0.26

 

And a lot of similar names show up in Joel Greenblatt’s “Acquirer’s Multiple”, which is just enterprise value divided by EBITDA minus Capex.

Valero, the oil refiner, has understandably been hammered by the suddenly growing gasoline inventories. Unloved tech hardware names, Western Digital and Seagate Technologies, have both performed quite well over the past month and a half, and sentiment on those stocks does look to be turning.

Stock Ticker

EV (US$ mn)

EBITDA-Capex

Acquirer's Multiple Score

VALERO ENERGY

28285

6582

4.3

HP INC

26170

5929

4.4

FRANKLIN RES INC

15022

3169

4.7

FORD MOTOR CO

40765

8417

4.8

WESTERN DIGITAL

10580

2113

5.0

GILEAD SCIENCES

115912

22544

5.1

ANTHEM INC

28885

5544

5.2

DELTA AIR LI

35206

6692

5.3

FIRST SOLAR INC

3300

608

5.4

SEAGATE TECHNOLO

11883

2152

5.5

 

Momentum Stock Picks

Note: These momentum stock recommendations are based off backtested results looking at a 3 day holding period (momentum signal shorter in S&P 500) with a 5% stop loss on every trade.

WMB – (Buy)

Williams Cos has surpassed its highs in early June and looks to have enough solid momentum to break through its 2016 highs of $26.70.

EMC – (Buy)

EMC could go higher after its takeover from Dell was approved by its shareholders.

MON – (Buy)

Monsanto rejected Bayer’s takeover offer as inadequate and as speculation foments that they could come back with a higher offer the stock could continue to rise.

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