Buy these 30 stocks that offer the best bargains for strong sales and earnings growth in a pricey market, Credit Suisse says
In a recent note, Bank of America displayed various measures of valuation juxtaposed against historical norms. Clearly, the vast majority of market gauges are trading on the loftier side of history. Table 4: S&P 500 Valuations - shading indicates that metric is statistically expensive relative to history Metric Current Average Avg.
ex. Tech Bubble Min Max % Above avg Z-Score History Trailing PE 21.4 16.3 15.6 6.7 30.5 31.4% 1.1 1960-present Trailing GAAP PE 29.1 19.3 18.5 6.7 122.4 50.7% 0.8 1960-present Forward Consensus PE 22.0 15.4 14.5 9.8 25.1 42.7% 2.0 1986-present Trailing Normalized PE 22.9 19.1 17.8 9.2 33.9 19.6% 0.8 9/1987-present Median Forward P/E 20.2 15.2 14.9 9.7 21.0 32.9% 2.3 1986-present Shiller PE 28.9 17.1 16.4 4.8 44.2 69.2% 1.7 1881-present P/BV 3.81 2.54 2.34 0.98 5.34 50.0% 1.3 1978-present EV/EBITDA 15.0 10.2 9.8 6.0 15.2 47.6% 2.2 1986-present Trailing PEG 2.15 1.45 1.43 0.93 2.21 48.3% 3.0 1986-present Forward PEG 2.22 1.24 1.22 0.82 2.25 79.4% 4.6 1986-present P/OCF 16.2 10.8 10.1 5.4 19.0 50.2% 1.8 1986-present P/FCF 26.8 27.9 24.8 12.9 65.7 -4.0% -0.1 1986-present EV/Sales 2.79 1.89 1.81 0.86 2.91 47.5% 1.7 1986-present ERP 816 489 505 136 880 66.9% -1.7 11/1980-present Normalized ERP 478 313 355 -91 965 53.0% -0.8 1987-present S&P 500 Div. Yld. vs. 10yr Tsy. Yld. 2.66 0.65 0.64 0.17 3.07 310.0% -4.9 1953-present S&P 500 in WTI terms 80.0 25.2 22.7 2.7 175.3 217.4% 3.0 1960-present S&P 500 in Gold terms 1.74 1.61 1.37 0.17 5.48 8.6% 0.1 1968-present S&P 500 vs. R2000 Fwd. P/E 1.23 1.00 0.95 0.72 1.71 23.0% 1.3 1986-present S&P 500 Market Cap/GDP 1.39 0.62 0.58 0.22 1.39 125.9% 2.6 1964-present *Above average implied equities are attractive relative to bonds. Note: Trailing P/E based on GAAP EPS from 1960-77, Operating EPS from 1978-87, Pro forma EPS 1988-now. Trailing GAAP P/E based on GAAP P/E for entire series. Market-based ERP based on DDM-implied S&P 500 return less AAA corp bond yield. Normalized ERP based on normalized EPS yield less normalized real risk-free rate. **Shiller PE is as of June 2020 Source: S&P, Compustat, Bloomberg, FactSet/First Call, BofA US Equity & Quant Strategy Nevertheless, Jonathan Golub, the chief equity strategist at Credit Suisse, thinks opportunities are afoot. In a recent note, he highlighted stocks that offer a compelling blend of reasonable valuations and attractive growth prospects. "While the growth rates and margins of these 30 stocks tend to be a bit lower than the highfliers, their multiples are substantially more attractive," he said. He added: "We highlight those companies that deliver the most attractive trade-off between fundamentals and valuations." Golub's picks have a median sales growth of 16.7% and median earnings-per-share growth of 27.0%. To put those figures in perspective, the median sales growth and earnings-per-share growth of a stock within the S&P 500 is 2.8% and 6.3%, respectively. Here are the 30 stocks the Golub handpicked that look the most attractive. The picks are listed in alphabetical order.
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