WHAT ARE WE LOOKING FOR?
From February 20, to March 5, 2020, the S&P 500 was down more than -15%, officially landing in the market correction territory. As the COVID-19 continues to spread in new territories, global supply chains are being disrupted, and companies are readjusting their forecasts. Mainland China is the most impacted with 111,363 confirmed cases and a death rate of 3.7% (as of 09/03/2020). Although we are facing a lot of uncertainty in the global economy and the financial markets, this might be a good opportunity for investors to buy stocks at a discounted price.
Today we will be looking at US fundamentally-sound stocks that are trading at a discount, giving the recent market correction.
- market cap: $1B – we are only looking for large cap companies
- Current SP Score: A minimum score of 50. The SP Score is a scoring system model, based on a 12-factor algorithm, which focuses on quality and value. The weights for quality and value are 75% and 25%, respectively.
- Price 20-day Change (%): Stocks that are down at least –15% in the past 20 days. A 15% drop is considered a market correction
- Increase in NOPAT over 24 months: at least 5% increase in NOPAT over the last 24 months. We are looking for companies that can increase the profitably of the business
- Positive EVA: We are looking for companies with positive EVA only. Economic Value Added (EVA) is a measure of true economic profit created by a company. The higher Economic Value Added, the more value a company generates for its shareholders.
- Increase in Sales over the last 24 months: At least a 7% increase in sales over the last 2 years. We are looking for company that can scale and grow the business
- Dividend yield: At least a yield of 3%. This is an indicator that the company can distribute their profits with the shareholders
WHAT WE FOUND
We found 10 companies that were potentially affected by the market correction but appear to have strong fundamentals.
||RECENT PRICE ($)
||MKT CAP ($MIL.)
||CURRENT SP SCORE
||NOPAT CHG. 24M (%)
||SALES CHG. 24M (%)
||DIV. YIELD (%)
||20D PRICE RETURN(%)
||1YR PRICE RTN.(%)
||Cisco Systems, Inc.
||Vornado Realty Trust
||Synovus Financial Corp.
||Shell Midstream Partners Lp
||Mercury General Corporation
||Evercore Inc Class A
||Plains Gp Holdings Lp Class
||Greif Class B
||Cadence Bancorporation Class
Cisco Systems is one of the global players in the Network and Cloud industry. They have been increasing their revenue year-over-year as well as their operating margins. One of the strategies put in place to boost revenues is to offer new products targeted to small businesses This could be a game changer, as we see the rise of small businesses in North America. Although the company beat Q2 earning, the stock dropped due to fears of COVIS-19, as 40% of their sales is outside the US. Given its potential, the stock price has been trading at the same price level as February 2018 – this might be a good buying opportunity.
Vornado Realty Trust is a real estate investment trust formed in Maryland, with its primary office in New York City. The company invests in office buildings and street retail in Manhattan. They have been constantly distribution a stable dividend yield of around 3.9%. The company has been increasing the net profit margin, ROE and ROA over the last 3 years. They are the largest owner of LEED-certified property in the US, with more than 27 million square feet of LEED-certified properties. With a solid balance sheet and a strong market presence in the US, Vornado might be trading at a discount given a rent drop of -21% last 20 days
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