Multiple Factors Point to Looming Outperformance of High Quality Stocks, Says S&P Equity Research
April 11 2006 - 3:27PM
PR Newswire (US)
Factors Include Volatility, Valuations, Interest Rates and Earnings
Growth NEW YORK, April 11 /PRNewswire/ -- In the Q1 2006 edition of
Quality Trends, Standard & Poor's Equity Research Services
points out several factors that could lead to outperformance by
high Quality Ranking stocks. Quality Trends, co-authored by
Standard & Poor's analysts, Massimo Santicchia and Richard
Tortoriello, is Standard & Poor's Equity Research's quarterly
sourcebook for investors interested in "high-quality" stocks, as
ranked by S&P's proprietary Quality Ranking system. A number of
factors, when combined, lead Standard & Poor's Equity Research
to forecast a rotation towards high Quality Ranking (QR) stocks in
the U.S. equity markets. One of the most significant factors cited
by the authors is the rising amount of risk investors are currently
willing to take, as measured by The Chicago Board Options Exchange
Volatility Index and other risk-oriented indices, in their search
for higher returns. The Index is at lows not seen since late 1994.
February 1995 marked the beginning of a nearly five-year cycle of
high quality outperformance. Additionally, the authors point out
that valuations of low Quality Ranking stocks vis-a-vis high QR
stocks have reached levels, which have historically preceded a
rotation to high QR issues. For example, on a price-to-earnings
basis, low QR stocks are now selling at a significant premium to
high QR issues, versus an historical discount. "We believe that
investors' risk tolerance has reached an extreme, which has
historically resulted in a reversal in investor sentiment, followed
by a cycle of outperformance by high QR stocks," said Massimo
Santicchia, co-author of Quality Trends. "In addition to investor
risk tolerance, other macro economic factors could create headwinds
for low Quality Ranking companies." "We also expect rising interest
rates and slowing corporate profit growth to result in a rotation
toward high QR issues. Higher rates mean increased economic and
company-specific risk, while slowing overall profit growth
increases the attractiveness of high QR issues, which tend to have
more consistent earnings in both up and down economic cycles," said
Richard Tortoriello, S&P Equity Research Analyst and co-author
of Quality Trends. Stocks that S&P Equity Research currently
accords an "A+" Quality Ranking and a "5-STARS," or "Strong Buy,"
by the covering S&P equity analyst include: Automatic Data
Processing (NYSE:ADPNYSE:$46), Capital One Financial (NYSE:COFNYSE:
$84), Citigroup (NYSE:CNYSE:$48), Colgate-Palmolive
(NYSE:CLNYSE:$57), Home Depot (NYSE:HDNYSE:$42), Johnson &
Johnson (NYSE:JNJNYSE:$58), PepsiCo (NYSE:PEPNYSE:$58), SunTrust
Banks (NYSE:STINYSE:$74), UnitedHealth Group (NYSE:UNHNYSE:$52),
Wal-Mart Stores (NYSE:WMTNYSE:$46), and Wrigley (Wm.), Jr.
(NYSE:WWYNYSE:$60). Standard & Poor's Equity Research has been
providing S&P Quality Rankings on common stocks since 1956. The
rankings, which range from A+ (highest) to D (liquidation), reflect
the relative record of a company's growth and consistency in
earnings and dividends over a trailing 10 year period. Readers
should note that past performance is not necessarily a valid
indicator of future results. A copy of the report can be obtained
from Brian McGovern, Standard & Poor's equity research sales,
at 212-438-4654 or, by email, at . About Standard & Poor's
Standard & Poor's, a division of The McGraw-Hill Companies
(NYSE:MHP), is the world's foremost provider of independent credit
ratings, indices, risk evaluation, investment research, data and
valuations. With approximately 6,300 employees located in 21
countries and markets, Standard & Poor's is an essential part
of the world's financial infrastructure and has played a leading
role for more than 140 years in providing investors with the
independent benchmarks they need to feel more confident about their
investment and financial decisions. For more information, visit
http://www.standardandpoors.com/. About Standard & Poor's
Equity Research Services As the world's largest producer of
independent equity research, over 1,000 institutions license
Standard & Poor's research for their investors and advisors,
including 19 of the top 20 securities firms, 13 of the top 20
banks, and 11 of the top 20 life insurance companies. Standard
& Poor's team of 100 experienced U.S., European and Asian
equity analysts use a fundamental, bottom-up approach to assess a
global universe of approximately 2,000 equities across more than
120 industries worldwide. Follow Standard & Poor's equity
analysts' US market commentary each day at
http://www.equityresearch.standardandpoors.com/. The equity
research reports and recommendations provided by Standard &
Poor's Equity Research Services are performed separately from any
other analytic activity of Standard & Poor's. Standard &
Poor's Equity Research Services has no access to non-public
information received by other units of Standard & Poor's.
Standard & Poor's does not trade on its own account. The
analytical and ethical conduct of Standard & Poor's equity
analysts is governed by the firm's Research Objectivity Policy, a
copy of which may also be found at
http://www.standardandpoors.com/. DATASOURCE: Standard & Poor's
CONTACT: Edward Sweeney, Communications Tel.: 212-438-6634 Web
site: http://www.standardandpoors.com/
http://www.equityresearch.standardandpoors.com/
Copyright
Colgate Palmolive (NYSE:CL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Colgate Palmolive (NYSE:CL)
Historical Stock Chart
From Jul 2023 to Jul 2024