Author: Gary Ashton
Estimated read time: 4 minutes
Publication date: 8th Jul 2019 11:19 GMT+1
Investors are continuously looking for ways to improve performance in their stock portfolios. Professional investors call it alpha, the extra return you get from a stock beyond what the market is offering. One way to hunt for such shares may be to use Finscreener.com’s bubble chart. In this example, we use the bubble chart to analyse the 30 stocks in the Dow Jones Industrial Average.
Setting up the analysis is straightforward. We select the Dow 30 as the market to explore. Bubble colour can be anything we wish, but in this example, we use year-to-date (YTD) stock price performance so we can see how things have shaped up in 2019. On the x-axis, we plot the 3-year historical price performance of the stock, which is a short to medium-term look at the stock’s return. On the y-axis, we plot the next fiscal year’s estimated earnings-per-share (EPS). Looking at next year’s expected EPS by Wall Street analysts is one way to identify stocks that could outperform the market.
Setting up our analysis in this way identifies five stocks that could outperform in 2020: Goldman Sachs (NYSE: GS), UnitedHealth Group (NYSE: UNH), International Business Machines (NYSE: IBM), 3M Company (NYSE: MMM) and Exxon Mobile (NYSE: XOM). What makes us think these stocks are worth additional examination? They all sit along the upper left frontier of our scatter bubble chart
Goldman Sachs - Top among them is Goldman Sachs. The stock has done very well in 2019, up 24.45% and is up 43.37% in the last three years. The performance looks like a pretty good run that may have entirely run its course. The thing is that Goldman has the highest expected EPS next year in the Dow 30 at $25.52 per share. The next closest is Boeing (NYSE: BA) with a 2020-EPS of $21.43, but Boeing is up more than 182% in the last three years, and the stock could be overvalued given the current problems with its 737 MAX jet.
UnitedHealth Group - Another potential candidate is UnitedHealth Group. The stock is down 0.86% in 2019 after posting a 74.27% return over the last three years but has a $16.63 2020-EPS, which is the third highest in the Dow 30. The stock is also one of three in the Dow 30 Industrial Average to have negative returns YTD in 2019. If the expected EPS transpires in the next fiscal year, the stock should perform better than it has so far in 2019.
International Business Machines - IBM is another stock that could do well in 2020. Performance so far in 2019 has been impressive with the stock up 24.28%, but lags on a three-year basis, down 6.41%. Next year’s estimated EPS is $14.12, which is better than Apple Inc (NASDAQ: AAPL) at $12.81. Apple is currently up 29.47% in 2019 and 114.94% in the last three years. IBM could be positioned to outperform if it can deliver on these expected earnings.
3M Company - Three M Company is currently an unloved Dow 30 stock, one of the only stocks to have a negative return in 2019, down 9.73% YTD and down 1.19% on a three-year basis. The stock took a bit of beating in April 2019 when the company announced poor financial results and said it plans to lay off around 2000 workers. The stock seems to be a victim of the US/China trade war and is under pressure. Analysts are still optimistic about the company’s earnings prospects next year, however, with the 2020-EPS of $10.26, on par with Home Depot (NYSE: HD) and JP Morgan Chase (NYSE: JPM).
Exxon Mobil - A final candidate to perhaps perform well in 2020 is Exxon Mobil. Exxon is up 11.64% in 2019, but up just 3.64% on a three-year basis. Wall Street analysts currently expect the company to have earnings per share of $4.85 in 2020, which is in the same range as other names that have performed better in the last three years such as Procter & Gamble (NYSE: PG) with 2020-EPS at $4.75, Walmart (NYSE: WMT) at $5.06, Visa Inc. (NYSE: V) at $6.20 and Microsoft (NASDAQ: MSFT) at $5.10.
Disclaimer: Gary Ashton is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.