What are we looking for?
North American securities combining positive price momentum, upward analyst revisions and sector outperformance.
The screen
The S&P/TSX composite index and S&P 500 have suffered significant losses this year; the overwhelming majority of sectors are in the red with the exception of TSX materials, and utilities and telecommunication services across both indexes. Yet, there are companies within the beaten-down sectors that have outperformed their peers – resisting the downward pressure to remain positive on a year-to-date basis.
We screen for such companies with the potential to sustain the upward price momentum, based on the premise that should these indexes experience a turnaround, these companies would continue to outperform their peers as they have done through the downturn. Our screen is based on the following criteria:
- Year-to-date per cent price gain is greater than zero (excluding utilities, telecom services, and TSX materials);
- Market cap greater than $1-billion;
- Medium-term price momentum score of 80 or greater: This is a percentile ranking of North American stocks based on historical price performance that compares the 10-day average closing price with the average closing price over the past three months (a score of 80 means that the security has better price momentum than 80 per cent of North American stocks). This StarMine indicator is best used to identify stocks undergoing a medium-term trend reversal.
- Analyst revision component of 80 or greater: This StarMine model is a percentile ranking of North American stocks based on clusters of upward-earnings estimates by analysts (a score of 80 means that the security has experienced analyst revisions better than 80 per cent of North American stocks).
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What did we find?
Our screen yields 20 companies (the top 15 of which are shown here), where the constituents vary across sectors, market caps and valuations, with the largest stock being Stryker Corp. These stocks have enjoyed favourable sentiment by analysts, outperformed their sectors as evidenced by the year-to-date price return, and could sustain the positive momentum as pointed out by technical indicators.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.