I followed some of the discussions on a few blogs related to my last article and my highlight of H&R Block (HRB). Fellow investors thought it interesting to discuss which stocks would do better depending on which presidential candidate ultimately wins next month. In those discussions, people thought it was much easier to find individual stocks that would perform well if Romney triumphs, but had more difficulty trying to identify outperforming stocks if Obama is re-elected.
Don't worry, this article isn't going to delve into politics. But, because I like challenges, I wanted to tackle the issue of finding stocks that might do well should the incumbent get four more years. At first glance, it does seem a little trickier to find these stocks because it's not apparent that pro-business agendas are in the works. However, it is possible to get some direction from existing or potential policies and search for outperforming stocks in specific industries.
Where to Begin
Looking at Obama's policies can provide clues to certain industries that would have a favorable tail-wind should he be re-elected. Tax services, agribusiness, waste resources, alternative energy, and certain health care groups are a few of those industries that come to mind. But, you need more than just the right industries to find good stocks. You also need to pepper in criteria that's useful in a winning-stock formula.
Luckily, the Zacks Research Wizard is capable of screening by specific industries. It also contains almost any company data item you could imagine that would lead to identifying the cream of the crop.
How To Select
Selecting stocks by industry is super easy within the Research Wizard. Simply open the program, click on company descriptors, then select industry codes. There you'll have a little over 200 different industries to choose from. You can also screen by economic sectors if you feel a broader group of stocks will outperform.
Once you've selected the industries or sectors you believe are most likely to outperform, you'll need a way to pick the top stocks in those categories. The best ways to do that are to use a rating system or incorporate stock-picking ideas that prove profitable. The Zacks Rank is an indicator that leads to outperforming returns. While not as effective, average broker ratings are also useful. You could also include ideas like a low Price/Earnings ratio, high earnings growth rates, and price momentum. Since the Research Wizard contains several hundred data items, you're really only limited by your imagination.
Here's how to find stocks for an Obama victory:
- First, create a liquid, investible set of the stocks whose market cap is above $1.5 billion (if there's not enough liquidity, it'll be hard for you to trade).
- Select only those stocks with a current Zacks Rank less than or equal to 3. (You want stocks rated at least a "Buy" or "Hold.")
- Because the Zacks Rank has a large number of "Holds," let's also require the company to have an average broker rating better than a 3. (It's good for Street research to also think the stock is a good buy.)
- Next, pick those stocks within the agribusiness, alternative energy, diversified, waste, or electronic instruments industries. (Remember you want to select the "OR" operator within Research Wizard.)
- Finally, select only those stocks with a Price/Earnings ratio less than the S&P 500's median. (Our ideal stocks should be inexpensive relative to the S&P 500.)
Here are five of the stocks that passed the screen this week (10/05/12).
FSLR - First Solar, Inc.
First Solar engages in the design, manufacture, and sale of solar modules using a thin-film semiconductor technology in the United States and internationally. Although the sun doesn't shine on a lot of solar companies (believe me, I know as I own a number of them), First Solar is by far the brightest star in the industry. Due to a positive earnings surprise in the June quarter and increased earnings projections, the stock is a Zacks Rank "Buy." This stock also remains a great value based on almost any valuation measure.
GE - General Electric Company GE operates as a technology and financial services company worldwide. The company's Energy Infrastructure segment offers wind turbines, gas and steam turbines and generators, nuclear rectors, and power conversion technology and services. Wall Street analysts rate this company as a "Buy." GE's stock has almost doubled the S&P 500's return YTD, yet remains a value compared to the S&P 500's P/E. TMO - Thermo Fisher Scientific Inc. Thermo Fisher provides analytical instruments, equipment, reagents and consumables, and software for research, manufacture, analysis, discovery, and diagnostic services. A lot of this firm's revenue is received from the National Institutes of Health, an agency of the U.S Department of Health & Human Services. Thermo has an average broker rating of a "Strong Buy" and is also rated a "Buy" on the Zacks Rank. This company has a strong history of earnings surprises and future earnings estimates are increasing. Its P/E ratio is also below the S&P 500's median. BG - Bunge Limited Bunge Limited's Agribusiness segment is involved in purchasing, storing, transporting, processing, and selling agricultural commodities and commodity products, such as oilseeds and grains including soybeans, canola, sunflower, wheat and corn. The company's Sugar and Bioenergy segment produces and sells sugar and ethanol. Bunge is rated as a "Buy" on both the Zacks Rank and average broker rating. In addition, most of its valuation measures are below the S&P 500's. RSG- Republic Services, Inc. Republic provides non-hazardous solid waste collection, transfer, and disposal services for commercial, industrial, municipal, and residential customers. The company is also involved in materials recovery and other recycling operations that sort recyclable paper, aluminum, glass, and other materials. Being a bit down and out, Republic is the dark horse of this bunch. But, a couple of analysts have given the stock a "Buy" rating, so it's not entirely down for the count and it looks highly attractive as a Value stock. What makes it more intriguing is recent insider buying activity.
Guide Your Portfolio to Success Want to find more stocks poised to do well with Obama's policies? Or perhaps you'd like to see stocks that are likely to do well under Romney policies? No problem. The Zacks Research Wizard has plenty of flexibility to screen on any industry, sector, or a multitude of other stock specific data items. Starting today, you are invited to do this free of charge. You'll have 14 days to create, tweak, and backtest your strategies. At the same time, you can see the latest picks from pre-loaded winning strategies that average gains of up to +67.4% per year. Whatever your political viewpoint, set your portfolio up for success today. Learn more about your Research Wizard free trial >> Let's make some money!
Kip Robbins is a Quantitative Analyst with Zacks.com. He analyzes screens and strategies for Zacks customers and for use in Zacks Research Wizard which empowers individual investors to use market-beating screens, build their own, and backtest their results.