Government and private sector economists are telling us everything from "the economy is already in recovery" to "a recovery won't begin for quite some time." Most investors don't know for sure when the economy will improve, but we do know that the time to buy cyclical stocks is before the recovery begins, while they are still out of favor.
But which stocks? The Fool's CAPS screener can help find stocks that meet criteria of interest. Criteria for this search include established companies, highly rated in CAPS, reasonable valuation, strong balance sheet, revenue and earnings growth over the last three years, and a dividend so we get paid while waiting for the recovery. The following screening parameters were used to capture those criteria:
- Market capitalization greater than $250 million.
- Four or five star CAPS rating.
- Price-to-earning (PE) ratio less than 25.
- Long-term debt-to-equity less than 1.5.
- Dividend yield between 2 and 5%.
The screen returned 89 hits that were exported to a spreadsheet and sorted to remove non-cyclical sectors such as utilities, health care, and consumer goods. Results were then bounced against the "Earnings/Growth Rates" tab on CAPS quote page to look for positive forward earnings growth estimates. The results included the companies listed in the table below.
|
Company Name |
Dividend Yield % |
P/E Ratio (TTM) |
Est. Next-Year Earnings Growth |
Sector / Industry |
|---|---|---|---|---|
|
Praxair
|
2.0 |
22.4 |
15% |
Basic Materials / Chemicals |
|
United Technologies
|
2.2 |
16.7 |
11.4% |
Conglomerates / Conglomerates |
|
Elbit Systems Ltd. |
2.2 |
10.7 |
6.8% |
Industrial Goods / Aerospace and Defense |
|
Emerson Electric Company
|
3.1 |
19.5 |
20.3% |
Industrial Goods / Industrial |
|
Snap-On Inc.
|
2.8 |
16.1 |
14.7% |
Industrial Goods / Industrial |
|
Siemens AG ADS
|
2.0 |
25.1 |
30.7% |
Technology / Telecommunications |
Data Source: Motley Fool screener, stock quote pages, Google Finance. TTM=Trailing 12 months.
Investment decisions should never be made solely on results from a screener; screen output is just a starting point for further research. Of this list, Emerson Electric and Siemens are worth a closer look. Both have strong predicted earnings growth and pay a decent dividend if the recovery wait stretches out longer than expected. In both cases, the dividend is well covered by earnings.
What do you think? Is it too early to start buying cyclicals? Or are we already late and playing catch-up? Let us know in the comments box below, and remember that each comment posted earns $0.10 for this year's Foolanthropy campaign.
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