Investors looking for affordable options in the current market environment may need to think outside the box. With the S&P 500 index on the rise and approaching its all-time high, it can be challenging to find cheap stocks.
However, there is a strategy that might uncover hidden gems – focusing on stocks with a track record of strong earnings despite their recent losses. That’s exactly what Evercore strategists did when they screened for stocks on the Russell 1000, a similar index to the S&P 500.
To make it on the list, the selected stocks had to meet certain criteria. First, they needed to have experienced at least a 10% decline since the beginning of 2022, aligning with the market’s peak. Additionally, these companies must have an analyst 2024 EPS growth forecast of 7% or higher, which is in line with the long-term historical average growth rate for EPS on the Russell 1000.
Furthermore, to ensure consistency, the companies were required to have exceeded bottom line estimates in at least seven of the past eight quarters. The stocks also had to have a reasonable valuation, with forward price/earnings multiples below 50 times. Lastly, the market value of these companies had to be $5 billion or greater.
The screening process identified a select few stocks that meet these criteria. Among them are Citigroup, Comcast, Trex (a deck and railing manufacturer), PPG Industries (a paint and glass company), Paychex (a payroll services company), and Qorvo (a chip maker).
One of the standout choices is Comcast. With a market value of $173 billion, this media company has seen a 14% decline since the beginning of 2022. Impressively, it has beaten EPS estimates in each of the past 20 quarters, based on FactSet data. This consistent performance may instill confidence in investors regarding Comcast’s future earnings potential.
In summary, investors seeking value in the market should consider exploring beaten-down stocks that maintain a strong earnings track record. By doing so, potential opportunities for growth and profitability may be uncovered.
Analysts Predict Low Single-Digit Sales Growth for the Next Three Years
Analysts anticipate that annual sales growth for the next three years will remain in the low single digits, reaching $126 billion by 2026. This projection takes into account the decline in cable revenue, which is expected to be offset by increasing revenue from streaming and television subscription services.
Earnings per Share Expected to Grow at Almost 12% Annually
With the majority of its free cash flow—expected to be $13.9 billion this year—allocated towards share repurchases, the company aims to achieve an almost 12% annual growth in earnings per share. This strategic move could potentially drive the stock’s value upward in the coming years, ultimately benefitting investors.
Trex Stock Experiences a 42% Drop in 2022
Trex, a prominent player in the home decking and railings industry with a market value of $8.4 billion, has witnessed a significant decline in its stock value, dropping by 42% since the beginning of 2022. Despite this setback, Trex has consistently surpassed earnings per share estimates in seven out of the past eight quarters.
Analysts Predict Double-Digit Sales and Earnings Growth
Thanks to their higher price point, composite deckings sold by Trex contribute to estimations of an 11% annual sales growth, expected to reach $1.35 billion by 2025. Furthermore, an anticipated 17% annual growth in earnings per share, reaching $2.55 by 2025, is partially attributed to increasing operating margins. A key factor supporting these projections is the company’s commitment to using recyclable materials, leading analysts to expect rising gross margins over the next few years.
CEO Prioritizes Brand Strength and Cost Control
Trex’s CEO, Brian Fairbanks, emphasizes leveraging the strength of the company’s brand to promote the sales of composites. While the company aims to limit marketing expenses as much as possible, it is also willing to allocate additional resources should the need arise. Fairbanks emphasizes the importance of protecting the company’s brand, referring to it as the “golden child.”