Stocks that have done nothing for years are often called dead money by investors. Many dead money stocks are value traps that attract investors only to disappoint them. But there are a few candidates who can perform strongly, and Barron The stock screen is used to predict which dead money stocks are ready to come alive.
Recently reported issues with lead jacketed communications cable have been reported by The Wall Street Journal They shed a sharp light on the dead money issue. Verizon (stock ticker: VZ) and
(T) shares are down 11% and 16%, respectively, over the past three months, leaving both their price-to-earnings ratios and dividend yields at nearly 8%. Confusing, but these two have lost investors about 4% per year on average over the past 5 years while these two have lost
Standard & Poor’s 500
Dow Jones Industrial Average
They returned about 11% and 9% on average annually, respectively.
Are they ready to turn around? Wall Street doesn’t think so. About 19% of analysts covering Verizon stock price shares are Buys. The average buy rating for stocks in the S&P 500 is about 55%. Moreover, the buy valuation ratio for Verizon stock has been essentially unchanged over the past year. Not a very compelling case for cornering.
The metrics for AT&T stock look similar although 30% of analysts covering its stock rate it a Buy, just above Verizon.
Other sluggish stocks are more promising. Barron I looked at the stock in
Russell 3000 Index
That has basically done nothing over the past five years and identified 10 stocks where improving analyst sentiment could point to better days ahead.
The ten in no particular order are: Motorcycle Maker
(HOG), the maker of packaged food
(THS), a biotechnology company
(BCRX), the investment bank
(LAZ), the lawn care giant
(BIIB), a lubricant manufacturer
(KWR), Trust Bank
New York Mellon Bank
(BK), a music streaming service
The group’s average annual returns over the past five years have ranged from 1% to a loss of 8%. Not very good, but analysts are preparing for the names. The average Buy rating for the 10 is now about 62%, up 19 percentage points from 43% over the past year.
|company / bar||Market cap (billion)||Last price||2024E bis||Purchase to Rating Ratio W%||percentage of the previous year|
|Harley-Davidson / HOG||$4.9||$34.76||7.0||56%||35%|
|TreeHouse Foods / THS||2.7||47.68||16.2||57||43|
|Lazard / Laz||3.9||34.4||9.4||56||44|
|Biogen / Bahrain Islamic Bank||39.5||272.74||16.6||71||48|
|Spotify / hotspot||27.1||139.38||unavailable||61||50|
|United / UAL||17.2||52.31||4.4||68||42|
E = estimates
Sources: Bloomberg, FactSet
For the most part, the top ten is a list of value stocks. The average price for estimated 2024 earnings is about 12 times, which is 18 times less than the market multiple. It shouldn’t surprise investors. Dead money stocks often have low PE ratios, which is another thing to impress investors before they realize a stock is cheap for a reason, say, because of peak earnings in a cyclical industry or because of a business downturn.
It’s not easy to say why the Street has become more positive about stocks. Few of the 10 have increased earnings estimates, which is a positive sign for stocks. However, United and Quaker see analysts taking their 2024 earnings estimates higher. Lazard has some management the changes pending. New CEOs and senior managers could be a signal for a stock revaluation. TreeHouse has taken over its entire fiscal 2023 guidance When it announced its second quarter numbers in early August.
Why the street has become more optimistic is not convincing. In general, things are looking better for the analysts, who are paid to follow the companies more closely.
The stock screen, of course, is only the beginning of narrowing down your potential list of new investments. After the screen is when the real work of investing begins.
Write to Al Root at email@example.com