Those of you who follow ValuEngine’s weekly lists of top-rated, 5 out of 5, Strong Buy stocks may have noticed that most of these stocks tend to be in the lower half of both the market cap spectrum.  This is a function of the fact that our scores are tied to our predictions for year-ahead percentage price change and simple mathematics.  Simply put, it is rarer for a stock with $10 million dollar market capitalization to go to $100 million (a 900% increase) than it is for a $300 billion solar stock to become a $3 trillion stock in one year. There is only so much new money that can be invested in a stock.  Hand in hand, a lot more new information can come into the market – and thus increase its price – for the stock a virtually unknown company and the stock of a well-known company that has been priced by the dollar-weighted views of all investors in the market.  The converse of that is that most $10 million dollar stocks do not ever catch “lightning in a bottle” and are much more likely to be the stocks of companies that will eventually fail before becoming large enough for institutional investors to consider. 

The above paragraph is merely an information prelude to this week’s article.  Often the most attractive stocks in the S&P 500 will be rated 4 (Buy) out of 5 by ValuEngine rather than four because of the above phenomenon.  There are more than 3 times as many 4-rated stocks than there are 5- rated stocks and still represented above-average buying opportunity. 

The table above is sorted by projected year-ahead price gain percentage according to ValuEngine’s predictive model.  Beyond this column and the ranks, the table contains 6 additional informational columns:

1. Lower Volatility Rank
2. Beta
3. Price/Sales Ratio
4. VE Valuation Model Rank.

The first two measure pertain to price volatility.  The last two columns are measures of valuation. I chose price-to-sales over P/E and P/B as being subject to the least amount of accounting data manipulation.  Others may prefer either of the other two.  The VE valuation model considers how much an investor is paying for the stock with respect to expected future earnings and price gains and other factors.

For investment professionals with access to the ValuEngine system, the screener output contains many more data columns.  The PDF company reports supply all of this information and even more including company descriptions and many standard and non-standard universe ratios, balance sheet and income statement items.

Analysis 

For reasons mentioned in the opening paragraph although subject to the prevailing economic and technical market environments, the top-rated stocks tend to have above-average price volatility.  The exceptional high volatility and beta of the second highest rank stock, NCLH . Norwegian Cruise Line is representative of this fact.  However, this is by no means universal.  Allstate, ALL, is the least volatile of the stocks in the table.  The highest-ranked stock by market capitalization is Netflix, NFLX.  The most undervalued stock Is Lumen Technologies, LUMN. Lumen is also the smallest  market cap company in the table.

Although they are very volatile, there are seven Travel and Leisure related stocks in the list.  Six also score well in our valuation model and have low price/sales ratios. These include: Norwegian Cruise Line (NCLH), American Airlines (AAL), Carnival Cruise Lines (CCL), Delta Air Lines (DAL), Southwest Air (LUV) and United Airlines (UAL).  Las Vegas Sands (LVS) is the 7^th T&L stock on the list, but it is overpriced according to our valuation model and its ratios. 

Although they are characterized as Internet/Software, Netflix (NFLX) and Etsy, Inc. (ETSY) could arguably be called leisure companies also.  So, nearly nine of our model’s most attractive company stocks are related in one way or another to travel and leisure.  This may indicate that the pent-up demand for activities from Covid restraints in 2020 and 2021 has not yet been satisfied.

Given this week’s theme, I did not include my usual ETF benchmarks for comparison.  Instead, I include an event note about the industry’s ETF.com awards dinner. 

Event Note

For any follower who missed it, the nominations for the etf.com Awards 2023 are now finalized and in the hands of an illustrious panel of judges. The dinner announcing the winners will be on May 2, 2023 and is institutionally priced at $365 per ticket at the sumptuous Tribecca Rooftop in New York City.

Many of us who cannot attend will be there in spirit. The next day, May 3, we will read of the judges' decisions with great interest.  Of special interest to yours truly is the Lifetime Achievement Award awash with nominees I know well and who have contributed a great deal to shaping the success of the ETF industry from the very beginning. The group includes: Jay Baker; Joanne Hill; Jan van Eck; Anna Paglia and Anthony Rochte.

The most prestigious ETF category will go to the:
ETF of the Year
It is awarded to the ETF that has done the most to improve investor opportunities and outcomes in 2022 by providing access to interesting areas of the market, lowering costs, delivering new exposures or otherwise creating better results for investors.

2023 Nominees
AXS Astoria Inflation Sensitive ETF (PPI)
Amplify CWP Enhanced Dividend Income ETF (DIVO)
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
JPMorgan Equity Premium Income ETF (JEPI)
Pacer ETFs U.S. Cash Cows 100 ETF (COWZ)
Schwab U.S. Dividend Equity ETF (SCHD).

Congratulations to all the nominees!

For those interested in perusing the lists of nominees, the hyperlink to the page is: https://awards.etf.com/

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