Investors are facing a challenging task of identifying cheap stocks in the constantly rising S&P 500. As the index surges to new heights, currently up 15% from its recent low in late October, it becomes crucial to get creative in hunting for potential investment opportunities.
One effective approach to uncovering hidden gems is to spot stocks that have experienced a decline but still maintain strong earnings trends. In light of this strategy, Evercore strategists decided to conduct a thorough screening of stocks listed on the Russell 1000, a comparable index to the S&P 500. The goal was to identify shares that have been beaten down in the market but possess earnings power that may not be fully recognized by investors.
To make it onto the list, stocks had to demonstrate a decline of at least 10% from the beginning of 2022, coinciding with the market reaching its peak. It was also required that these companies have a forecasted 2024 EPS growth rate of 7% or higher, as this aligns with the long-term historical average growth rate for EPS on the Russell 1000. Further criteria included exceeding bottom line estimates in at least seven out of the past eight quarters, having a forward price/earnings multiples below 50 times, and maintaining a market value of $5 billion or more.
After a rigorous screening process, a handful of promising stocks emerged, out of which we have chosen six worth highlighting: Citigroup, Comcast, Trex (a deck and railing manufacturer), PPG Industries (a paint and glass company), Paychex (a payroll services company), and Qorvo (a chip maker).
Comcast, a prominent media company valued at $173 billion, has experienced a decline of approximately 14% since the beginning of 2022. Impressively, Comcast has consistently beaten EPS estimates over the past 20 quarters, according to FactSet data. This notable track record certainly instills confidence in the company’s earnings outlook.
By considering these beaten-down yet promising stocks, investors may have the opportunity to acquire undervalued assets that possess significant potential for growth.
Analysis Predicts Steady Sales Growth for Company
Analysts are projecting that the company will experience low single-digit annual sales growth over the next three years, reaching a total of $126 billion by 2026. This growth will be driven by an increase in revenue from streaming and television subscription services, while cable revenue is expected to decline.
Furthermore, earnings per share are forecasted to grow at an impressive rate of almost 12% annually, reaching $5.40 by 2026. The company plans to utilize its free cash flow of $13.9 billion this year to repurchase shares, which will contribute to the stock’s upward trajectory in the coming years.
Despite recent struggles, Trex, a leading manufacturer of home decking and railings with a market value of $8.4 billion, has surpassed earnings per share estimates in seven out of the past eight quarters. This positive track record, along with the company’s focus on selling composite deckings at higher price points, is expected to drive a sales growth rate of 11% annually to reach $1.35 billion by 2025.
Moreover, the company aims to achieve a 17% annual growth in earnings per share by 2025, partially attributable to rising operating margins. Analysts anticipate an improvement in gross margins as Trex increasingly incorporates recyclable materials into its products, which will help control costs.
CEO Brian Fairbanks emphasizes the value of the company’s brand strength in promoting composite sales and expresses the company’s commitment to protect it at all costs. While marketing expenses are not expected to increase significantly, Fairbanks acknowledges that higher spending may be necessary if required.
In conclusion, the company is poised for steady sales growth in the coming years, driven by successful positioning in streaming and television subscription services, a solid track record of surpassing earnings estimates, and the utilization of recyclable materials in its products. With a focus on preserving its brand strength, the company is well-positioned for continued success.