The stock market is up this year, but there are a bunch of stocks that just haven’t joined the party. Some of them look like potential pickups.
Russell 1000 index
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, which tracks the 1,000 largest US companies by market capitalization, has gained just over 6% this year. The main driver was that the market expects the Fed to soon halt interest rate increases, as the rate of inflation continues to decline.
For those who haven’t joined the rally, there are still plenty of stocks that haven’t quite gone up. The Invesco Russell 1000 Equal Weight Exchange Traded Fund (EQAL) is up less than 3% for the year. This fund weighs every stock in the index evenly, removing the outsized impact of large-cap stocks like Apple (AAPL) and Microsoft (MSFT), which have posted double-digit gains this year. The point is, not many stocks have had stellar years – and those showing strong fundamentals are the ones to consider.
That’s why strategists at investment bank Evercore scrutinized stocks that haven’t gained much and are potential buys. They looked for stocks in the Russell 1000 that underperformed the benchmark market value-weighted index, but they’ve seen analysts revise their 2023 earnings-per-share estimates upward this year, even as the index saw its overall EPS forecast revised downward by a few. percent. On-screen stocks should also have short interest, or the percentage of their shares outstanding that are short, in the highest percentage of a third of their ranges since the start of 2022. Stocks with high short interest often see those short sellers buying stock back. to any sign of strength.
One of the stocks on its screen is Caterpillar (CAT). It’s down about 7% this year, but analysts revised their 2023 earnings per share estimate up just over 4% this year. Her short interest is in the 80th percentile of her range as of the beginning of 2022.
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Many drivers are responsible for somewhat positive earning expectations. The company has been able to raise the prices on its devices enough to offset higher costs, keep profit margins stable and earnings dollars higher. The company’s gross margin remained at roughly 30% last year, unchanged from 2021, according to FactSet. For this year, sales of $63 billion will be up about 6% from last year. Strong pricing is helping sales, the company said, but even if prices moderate along with broader inflation, the company said in a March conversation with Goldman Sachs that the backlog in building commercial properties and solar turbines should support the volume of products sold. This year, sales growth should help extend operating margin to about 16% from just over 13% last year.
Under Armor (UAA) is another example. It’s down just over 9% this year, but analysts have revised EPS forecasts down by about 3.2%. Short attention is at the 75th percentile for her latest rage.
The earnings picture is starting to stabilize. Analyst estimates for 2023 EPS fell more than 40% from last year’s highs to lows early this year. The company, which has struggled to compete against other athletic brands such as Nike (NKE), has been forced to lower product prices, which has hurt margins. Analysts expect sales to increase moderately this year to about $6 billion, with gross margin remaining stable at around 46%.
Halliburton
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(HAL) is also shown on the screen. The stock is down about 15% this year, but EPS estimates are up about 2.8% and short interest is in the same percent.
Albemarle (ALB) stock is down about 5% for the year, but EPS forecasts are up about 2.6% and short interest is in the same percent.
Take a peek at these stocks.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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