A new year can be a good time to search for new ideas. But where can investors find winning stocks?
Why not let Wall Street help? Analysts, after all, are the ones paid—sometimes handsomely—to know companies and the industries they cover, as well as rank their stocks according to attractiveness.
Barron’s looked at all the manufacturing stocks in the
Russell 3000,
paying particular attention to stocks that have improving analyst sentiment. That means more analysts like the stock and are rating shares Buy today than they did six months ago.
That yielded more than 100 names, as ratings change all the time. To cut the list down, the stocks had to have above-average Buy-rating ratios with several analysts changing their minds. That landed a more manageable list of 16 names.
The 16, in no particular order, are
Boeing
; building products distributors and installers
TopBuild
and
Installed Building Products
; water technology companies
Xylem
and
Pentair
; auto makers
General Motors
and
Rivian Automotive
; trucking company
Saia
; parcel shipper
FedEx
; defense giants
Huntington Ingalls Industries
and
L3Harris Technologies
; auto parts maker
Holley
; valve maker
Flowserve
; garbage hauler
Casella Waste Systems
; electrical utility supplier
Hubbell
; and backup generator maker
Generac.
Today, about 66% of the ratings for the group are Buy. Six months ago, that number was just above 50%. The average Buy-rating ratio for stocks in the
S&P 500
is about 55%.
The stocks have been working lately. Through midday trading Friday, the shares were up an average of about 43% over the past 12 months. The S&P 500 and
Nasdaq Composite
were up about 21% and 38%, respectively, over the same span.
That might scare some investors off, but it might be too early to abandon the list. A similar strategy—looking for improving analyst sentiment—worked out well this past year. Stocks meeting the same criteria to start 2023 gained about 22% on average over the next 12 months, a little better than the S&P 500 return.
Tesla
ended up on last year’s list, along with
General Electric
and
Eaton.
Sometimes analysts get it right.
This year’s group trades for about 22 times estimated 2024 earnings on average, compared with about 20 times for the S&P 500. Valuations are all over the place, however. GM trades less than 5 times earnings. Rivian doesn’t have a PE ratio, as it isn’t profitable yet.
| Company / Ticker | Recent Price | Market Value (billion) | Buy Rating Ratio | Old Ratio |
|---|---|---|---|---|
| Boeing / BA | $249.23 | $150.78 | 81.3% | 67.9% |
| Installed Building Products / IBP | 172.91 | 4.92 | 58.3 | 16.7 |
| Xylem / XYL | 111.61 | 26.91 | 61.9 | 47.1 |
| Generac / GNRC | 117.91 | 7.24 | 62.1 | 48.1 |
| Rivian / RIVN | 19.24 | 18.43 | 69.2 | 56.5 |
| L3Harris / LHX | 205.27 | 38.91 | 59.3 | 50.0 |
| Holley / HLLY | 4.66 | 0.55 | 90.0 | 50.0 |
| Saia / SAIA | 419.77 | 11.14 | 68.4 | 50.0 |
| FedEx / FDX | 247.65 | 61.88 | 61.1 | 52.9 |
| GM / GM | 36.16 | 49.52 | 65.6 | 58.6 |
| Flowserve / FLS | 39.79 | 5.22 | 66.7 | 41.7 |
| Hubbell / HUBB | 318.28 | 17.07 | 58.3 | 36.4 |
| Casella Waste / CWST | 81.07 | 4.7 | 77.8 | 57.1 |
| Topbuild / BLD | 352.94 | 11.21 | 75.0 | 54.5 |
| Pentair / PNR | 68.9 | 11.39 | 63.2 | 45.0 |
| Huntington Ingalls / HII | 251.02 | 9.98 | 57.1 | 45.5 |
Sources: Bloomberg, FactSet
What links all the names is analysts’ increasing optimism.
As always, a screen is only a starting point for investing. The real work begins with researching companies, their strategies, competitive positions, industries, and management teams.
Write to Al Root at [email protected]
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