Stock Screen: Value Plays with High Credit Ratings
The volatility in the markets over the last few weeks has many investors running for the sidelines. While we encourage investors to rethink their risk tolerance in light of recent market activity, we generally do not recommend dropping stocks—as an asset class—from your portfolio. The Standard & Poor's Investment Policy Committee continues to advise a 45% weighting to U.S. stocks for moderate investors, 55% for growth-oriented investors, and 30% for conservative investors.
But if you've been investing in high-risk stocks, we believe it may be time to reassess that strategy.
For this week's screen, we searched for "Five by Five" stocks, those that garner the top ranking both in the S&P STARS system, which is based on fundamental equity research, and the Fair Value system, which uses a quantitative approach.
First, a word about the S&P metrics we used. Stocks ranked 5 STARS under S&P Stock Appreciation Ranking System are expected to outperform S&P 500 index (on a total return basis) by a wide margin over the coming 12 months, with shares rising in price on an absolute basis.
S&P's Fair Value model calculates a stock's weekly Fair Value—the price at which a stock should trade at current market levels—based on fundamental data such as corporate earnings and growth potential, price-to-book value, return on equity, and current yield relative to the S&P 500. A Fair Value ranking of 5 indicates the stock is significantly undervalued.
And we added a twist to address today's concerns. We included only those stocks that have an investment grade credit rating from S&P Ratings Services, which operates independently from S&P Equity Research.
Eight stocks made the cut:
Company Ticker S&P Credit Rating
Allegheny Technologies ATI BBB-
ConocoPhillips COP A
EMC Corp. EMC A-
International Business Machines IBM A+
Noble Corp. NE A-
Oracle Corp. ORCL A
Potash Corp. POT A-
Starbucks Corp. SBUX BBB