Source: Barron's
Author: Jacob Sonnenshane
Since the fall of last year, the US stock market has continued to rise.$S&P 500 Index (.SPX.US)$It has risen 26% from the low it hit at the end of October last year, and has accumulated a 9% increase so far this year.
As a result, it is currently very difficult to find cheap stocks.
One reliable strategy investors can consider is to look for underperforming companies that are about to release financial reports and have their profit expectations raised. Evercore's strategists recently conducted a stock screening based on these criteria.
Evercore's team of strategists searched for companies that have outperformed the S&P 500 index this year. Profits from potential stock picks must have exceeded analysts' expectations for most of the past eight quarters. At the same time, analysts must increase their profit expectations more than other analysts this year. Potential stock picks must also obtain analysts' earnings growth this year faster than expected by their industry.
Stocks selected based on these criteria include$PepsiCo (PEP.US)$,$Mondelez International (MDLZ.US)$,$Zscaler (ZS.US)$ with$Paylocity (PCTY.US)$ .
The other stock eligible for screening is an industrial paint and paint manufacturer with a market capitalization of $32.7 billion$PPG Industries (PPG.US)$ The company's stock price fell by about 7% this year, and earnings exceeded expectations for eight consecutive quarters. FactSet data showed that analysts raised the company's earnings per share forecast by about 0.6% this year and revised their expectations for other companies in the same industry downward.
Analysts expect PPG Industries' revenue growth to be slightly more than 2% this year, reaching US$18.6 billion. Meanwhile, the company mentioned in the fourth quarter earnings conference call in January that prices are expected to continue to rise moderately. PPG Industries' automotive business has also gained new customers.
If the cost control plan is successfully implemented, PPG Industries' raw material costs will not rise significantly, and other operating costs may rise more slowly than revenue growth. As a result, analysts expect the company's profit margin to rise this year, which in turn will drive earnings per share to grow by slightly more than 10%, and the growth rate will surpass that of its peers. PPG Industries will announce financial results on April 19.
Chip manufacturer with a market capitalization of $111 billion$Qorvo (QRVO.US)$ It also met the screening criteria. The company's stock price increased by only slightly more than 2% this year. In the past eight quarters, Qorvo's profit exceeded expectations for six quarters. Analysts raised the company's earnings per share forecast by nearly 8% for this year, while their overall earnings per share expectations for US semiconductor companies declined.
Qorvo is expected to release financial results at the end of April or the beginning of May. Qorvo sells chips to consumer electronics manufacturers, smart home and IoT product makers, electric vehicle manufacturers, and other customers, and the company expects revenue to grow 9% to $4 billion this year. Growth in the cash cellular products business, the main source of revenue, is expected to drive overall growth.
Analysts who are optimistic about Qorvo believe that demand in the consumer electronics terminal market is expected to increase, while Qorvo is expected to reduce inventory as in the fourth quarter of last year.
Qorvo's commodity costs are expected to rise moderately, and fixed costs (such as depreciation and interest expenses) are expected to remain stable, so profit margins are likely to rise, and earnings per share are expected to increase 21%.
Investors may consider buying the shares of the six companies mentioned above before they announce their earnings reports.
Editor/jayden