How to look for new buys on the stock market
In the search for new buys, this advisory breaks down the best stocks in the best industries in the U.S. and comes up with three winners.
We don’t know about you, but we’re a little weary of watching the stock market go up and down.
If you’re a day trader or a short seller, it’s a thrill a minute, but it’s bound to get on the nerves of a lot of investors.
So let’s go looking for something different. New buys.
Actually, the search for new buys never ends, as far as one leading U.S. advisory is concerned. It’s not just a handy expedient in unpredictable markets like these. It’s worth trying even in the best of times.
Dow Theory Forecasts has a specific way to go about this search. It’s called Industry Group Studies.
The advisory combs through a mountain of data to see which industries in America are doing best right now.
Next it highlights three stocks that are the best in their businesses now — and have staying power for the future.
Profitable signposts
Dow Theory’s Industry Group Studies report does the math on some 4,000 stocks broken down into 114 groups.
Then the advisory, which traces its origins to Mr. Charles Dow, Wall Street’s first true statistical analyst, turns to its stock-rating system, known as Quadrix®.
This judges equities based on more than 100 variables in six categories — Momentum, Quality, Value, Financial Strength, Earnings Estimates, and Performance.
Knitting all this data together, the advisory can identify which groups are performing best — and worst. This gives investors signposts to the industries where profits are liable to be more plentiful in the months ahead.
According to this data, the top two groups in the U.S. now are chemicals, specifically agricultural stocks (i.e., fertilizers), and health care, specifically managed care firms.
But there isn’t a lot of space between them and oil and gas equipment and service firms, construction and engineering firms, big box retailers, electronics retailers and aerospace and defense firms.
At the bottom of the pile are three groups whose identity will come as no surprise — in descending order, automobiles, real estate development and homebuilding.
Now let’s see where X marks the spot — the three specific stocks that this advisory highlights.
Piling up sales
Cognizant Technology Solutions (NASDQ-CTSH) is a bit of an anomaly on this list, because the technology business isn’t right at the top of the industry heap these days.
But this company is adding sales so much faster than its peers that it earns an excellent Quadrix score and a strong buy recommendation.
The company supplies business management software, most notably with a project analysis program called eCockpit. The company lost some customers to consolidation, but that has simply made it more efficient as it adds to its market share as well as piling up sales.
Cognizant expects to pick up even more market share and expand its international reach with acquisitions. Per-share profits should grow by 7 per cent this year and 20 per cent over the next five years.
Cognizant trades at $26.90 and the stock has been moving upward. It is a Buy now and a Long-Term Buy (the advisory’s call for best buy over the next 24 months).
Chewing through the backlog
National Oilwell Varco (NYSE-NOV) is in one of the top industry groups, oil and gas services.
During the many months that oil prices have been dragging along at low levels, National Oilwell has been able to “chew through a $9.6 billion backlog, equivalent to almost nine months of sales,” says the advisory.
If the price of oil continues its steady climb, the company will soon be building up a brisk new backlog.
The share price is at $38.72 and has been moving in the right direction of late. It, too, is a Buy and a Long-Term Buy.
Rising sharply
Speaking of big backlogs, Precision Castparts (NYSE-PCP) has seven years’ worth of production on backlog with its leading customers, Airbus and Boeing.
As a top performer in the aerospace group, it has a bright future, although it does face one bump in the road. Both Airbus and Boeing are looking at some cancellations and deferrals.
But even if aircraft production slows this year, Precision is still looking at double-digit growth over the next five years. And the stock has certainly been taking off.
The shares are at $88.73 and have been rising sharply of late. The company is a Buy and a Long-Term Buy.
It would not be difficult to put the same litmus test to Canadian industries. If you’re looking for a fresh buy that will keep its freshness for months and even years to come, look at the industries that are liable to do best as we inch toward recovery.
New has got to be better. This crisis is getting old.
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