The Globe and Mail, Number Cruncher
By Peter Ashton
Monday, October 2, 2017
The energy sector is the market's biggest laggard this year.
What are we looking for?
U.S. building products and construction stocks poised to see increased revenue in the aftermath of Irma and Harvey. The recent hurricanes in Florida and Texas have left a swath of destruction not seen in the United States for many years. The rebuilding effort will be extensive and will last for months, if not years, in some areas. Damage estimates for Hurricane Irma alone are sure to stretch into the hundreds of billions of dollars. Such natural disasters are a tragedy for all involved but may provide a lift in the future revenues of companies providing building, construction and industrial products.
We will be using Strategy Builder to search for well-valued U.S. stocks in the building and electrical products, construction and industrial equipment industries.
We begin by setting a minimum market capitalization threshold of $5-billion (U.S.) to focus on larger, more stable and established companies in their respective industries. Next, we will look for companies with reasonable valuations based on their forward price-to-earnings ratio. We will select only companies with forward P/E ratio of 30 or less. To focus on companies with a track record of growing earnings, we will also filter for five-year earnings-per-share growth rates of 10 per cent or more.
Finally, in light of an increasing interest rate environment, we wish to select companies with low levels of debt, such as those with a debt-to-equity ratio of 1 or less.
What did we find?
Acuity Brands Inc. is an Atlanta based manufacturer of industrial and residential lighting products. The company announced great third-quarter results in June, reversing a year of disappointing financial results. Acuity stock is down almost 30 per cent in the past year, resulting in a forward P/E ratio of 22.6.
A.O. Smith Corp. is an American manufacturer of water-technology products including water treatment, boilers and water heaters. The company supplies both the residential and commercial markets. The stock has been on a roll for the past year; up 30 per cent in the past 12 months and 22 per cent year-to-date. The company has one of the lowest debt-to-equity ratios on our list at 0.23.
Watsco Inc. is the largest supplier of air conditioning, heating and refrigeration equipment and related parts in the United States and distributes brands such as Carrier, Bryant and Payne. The stock has rallied almost 6 per cent in the past two weeks based on good third-quarter results and subsequent analyst upgrades.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.