Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Is Your Portfolio Fit? 5 Stocks to Buy on World Heath Day

The U.S. stock market has staged a strong comeback from a scary start to the year, but bouts of volatility will keep threatening one’s portfolio. On World Health Day, let’s find out which stocks are fit enough to fight market vagaries and emerge as successful.  

The major headwind facing the market now is weak Q1 earnings growth expectations. The Zacks Earnings Trend predicts total earnings for the quarter to be down 10.3% on 2% lower revenues with negative earnings growth in 11 of the 16 Zacks sectors. This apart, relatively higher valuations and oil price instability are impairing the health of the economy at large.

How to Create a Healthy Portfolio

The health of a portfolio is not ascertained by stocks that are surging or gaining popularity. It is in fact determined by stocks that have solid fundamentals. This can be confusing at times, especially when markets do not co-operate and cause utter chaos in the investment world. In this write-up, we’ll focus on a balanced diet for a portfolio, with what and what not to add to it.  

As investors are concerned about weak corporate earnings, we have first chosen five sectors with positive Q1 earnings growth, and then tried to avoid what may be unhealthy. The junk food stocks have to go, and companies with relatively weak fundamentals can be considered junk food for your portfolio.

Finding both junk and healthy stocks becomes fairly easy when we use our  Zacks Stock screener. To identify the unhealthy ones, we have screened for stocks that are trading in higher average volumes over the past 20 days and may not have solid metrics. On the other hand, we have cherry picked stocks that have Zacks Rank #1 (Strong Buy) or 2 (Buy), and VGM score (V stands for Value, G for Growth and M for Momentum) of A or B. The VGM score when combined with a Zacks Rank #1 or 2 offer the best upside potential with a frenzy of cheap price, robust growth, and strong momentum.

Keeping these in mind, we have highlighted one stock from each of the five sectors that may look attractive but does not actually nourish one’s portfolio. Then we’ve compared it with another stock from the same sector to find out the healthier investment between the two.   

Auto

The auto sector is expected to be the biggest contributor to Q1 earnings with growth of 21.1%.

Forget Ford F, Focus on Cooper Tire & Rubber Co. CTB: While both stocks have a VGM Score of A, Ford with its average trading volume of more than 30.5 million shares and Zacks Rank #3 (Hold) is not nutritive for a portfolio. On the other hand, CTB has a Zacks Rank #1 with higher growth potential. This is especially true, as Cooper Tire has seen rising estimates of 13% over the past 60 days with an expected earnings growth rate of 6.19% for this year. This is in contrast to Ford’s no estimate revisions during the same time period and earnings growth of 0.86%.

Additionally, Cooper Tire has a Zacks Industry Rank of 4 out of 265 as compared to Ford’s Industry Rank of 40.

Construction

The construction sector will also see solid earnings growth of 6.9% for the first quarter.

Forget Cemex CX, Focus on Thor Industries THO: Here, both stocks have a Zacks Rank 1. While Cemex appears to be a hot stock with average trading volume of 30.5 million shares, Thor Industries appears sustaining for many reasons. First, Thor Industries has a VGM Score of A and a Zacks Industry Rank of 4 compared to Cemex’s VGM Score of D and Industry Rank of 106. Thor Industries is attractively valued at the current levels with a lower P/E ratio of 13.03 than 83.06 for CX. Further, earnings yield of 7.61% at Thor Industries is higher than the industry average of 7.53% and that of 1.26% for Cemex.
    
While projected earnings growth of Thor Industries for the current fiscal year is weaker, sales are expected to grow 10.6%, much higher than 3.73% for Cemex.

Business Services

This sector is likely to post Q1 earnings growth of 1.7%.

Forget Visa V, Focus on Omnicom Group Inc. OMC: Visa is the top trading large cap stock in the business service sector with market capitalization of $168.1 billion and trading volume of nearly 8 million shares a day on average. However, the growth potential of this stock seems weak given its Zacks Rank #3 and VGM Score of D. As a result, investors should hunt for better picks like Omnicom that has a Zacks Rank #2 and a VGM Score of A, suggesting solid future growth.    

Omnicom has seen upward earnings estimate revision by a couple of cents for the current fiscal year over the past 60 days against negative earnings revision for Visa in the same time period. Moreover, Omnicom is cheaper as it trades at a P/E ratio of 17.61 versus 27.97 for Visa. Earnings yield is higher at 5.68% against 3.57% for Visa. Further, the Zacks Industry Rank of 41 out of 265 for Omnicom is better than that of 104 for Visa.

Consumer Discretionary

The stocks in this sector are likely to see an average earnings growth of 0.8%.

Forget Sirius XM Holdings Inc. SIRI, Focus on Whirlpool Corp. WHR: Sirius XM is an investors’ darling with average daily volume of nearly 30 million shares. But will it really add any nutritional value to a portfolio? We doubt given its Zacks Rank #3, unfavorable VGM Score of D, Zacks Industry Rank of 76 and P/E ratio of 27.06. In comparison, Whirlpool boasts robust fundamentals with its Zacks Rank #2, VGM Score of A, Zacks Industry Rank of 36 and P/E ratio of 12.40.

Further, Whirlpool has seen positive earnings estimate revision over the past 90 days for the current year as opposed to negative earnings estimate revision for Sirius XM Holdings in the same time period.

Medical

The medical sector is also expected to report positive Q1 earnings growth of 0.6%.

Forget Pfizer PFE, Focus on Johnson & Johnson JNJ: Pfizer too is an investors’ darling. But its Zacks Rank #3, VGM Score of C and average daily trading volume of more than 61 million shares should make investors reconsider their positions in it. In comparison, Johnson & Johnson remains an intriguing pick given its Zacks Rank #2 and a VGM Score of B. It has a higher return on equity of 24.77% against 20.63% for Pfizer.

Further, earnings at Johnson & Johnson are expected to grow 4.93% while Pfizer’s earnings growth rate is a little lower at 3.59%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
PFIZER INC (PFE): Free Stock Analysis Report
 
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
OMNICOM GRP (OMC): Free Stock Analysis Report
 
WHIRLPOOL CORP (WHR): Free Stock Analysis Report
 
FORD MOTOR CO (F): Free Stock Analysis Report
 
CEMEX SA ADR (CX): Free Stock Analysis Report
 
THOR INDS INC (THO): Free Stock Analysis Report
 
SIRIUS XM HLDGS (SIRI): Free Stock Analysis Report
 
COOPER TIRE (CTB): Free Stock Analysis Report
 
VISA INC-A (V): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research