The financial markets have been experiencing significant turbulence recently. On Monday, the U.S. stock market saw steep losses, with the Nasdaq and S&P 500 each falling by over 3% and the Dow Jones Industrial Average dropping by 2.6%. This downturn has been driven by a combination of recession fears, disappointing earnings from major tech companies, the unwind of the Yen carry trade and broader economic concerns, including rising unemployment and shrinking manufacturing activity. Globally, the volatility has been even more substantial, with Japanese stocks experiencing one of their largest single-day drops ever, plummeting by over 12%. Although short-term market movements are impossible to predict, declines like this can sometimes punish great companies unfairly. This is where Validea’s system can be particularly valuable. Validea employs a series of systematic, fundamentally-oriented investing models inspired by the strategies of legendary investors like Warren Buffett, Peter Lynch, and Benjamin Graham. These models are designed to identify stocks that are fundamentally strong and potentially undervalued.
Looking for Fundamental Value in the Biggest Decliners
To try to find some potential opportunities in this decline, we ran a screen of stocks that are down over 10% in the past week and then sorted them by their ranking using our overall guru system, which combines all 22 of our strategies together.
Here are the top 5 stocks we found.
1. Williams-Sonoma, Inc. (WSM)
Williams-Sonoma is a multi-channel specialty retailer of high-quality home products. The company operates through well-known brands such as Williams Sonoma, Pottery Barn, and West Elm.
WSM scores a perfect 100% on Validea’s Patient Investor model, inspired by Warren Buffett’s approach. The stock stands out for its:
- Consistent earnings growth over the past decade
- Strong return on equity (ROE) averaging 36.4% over ten years
- Efficient use of retained earnings, generating a 20.2% return for shareholders
- Share repurchases, reducing outstanding shares from 154 million to 129 million over five years
Additionally, WSM scores 100% on the Twin Momentum model, indicating strong fundamental and price momentum.
2. LPL Financial Holdings Inc. (LPLA)
LPL Financial provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at enterprises in the United States.
LPLA achieves a perfect 100% score on the Patient Investor model, impressing with:
- Predictable earnings growth over the past decade
- Exceptional return on equity, averaging 33% over ten years
- Strong return on invested capital of 38.1% over the past three years
- Effective use of retained earnings, generating a 26.4% return for shareholders
The company also scores well (91%) on the P/E Growth Investor model, inspired by Peter Lynch’s approach.
Chevron is an integrated energy company involved in oil and gas exploration, production, and refining.
CVX scores 100% on the Growth/Value Investor model, based on James P. O’Shaughnessy’s strategy. Key strengths include:
- Large market capitalization of $295.7 billion
- Strong cash flow per share of $19.74
- Substantial trailing 12-month sales of $194.7 billion
- Attractive dividend yield of 4.27%
The stock also performs well (93%) on the P/E Growth Investor model, indicating a favorable balance between its valuation and growth prospects.
HSBC is a multinational banking and financial services company with a global presence.
HSBC achieves a perfect 100% score on the Growth/Value Investor model, standing out for its:
- Large market capitalization of $156.8 billion
- Strong cash flow per share of $1.76
- Substantial trailing 12-month sales of $109.3 billion
- Attractive dividend yield of 7.18%
The stock also scores highly (93%) on the Multi-Factor Investor model, which focuses on low volatility stocks with strong shareholder yields and momentum.
5. Commercial Metals Company (CMC)
Commercial Metals Company manufactures, recycles, and markets steel and metal products globally.
CMC scores 100% on the Value Investor model, inspired by Benjamin Graham’s approach. Key strengths include:
- Strong current ratio of 4.24, indicating solid financial health
- Low long-term debt relative to net current assets
- Impressive EPS growth of 753.9% over the past decade
- Attractive P/E ratio of 12.52
The stock also performs well (93%) on the P/E Growth Investor model, suggesting a favorable balance between value and growth characteristics.
While market declines can be challenging for investors, they often present opportunities to acquire shares in high-quality companies at discounted prices. By leveraging quantitative models like those offered by Validea, investors can identify stocks with strong fundamentals that may be well-positioned for future growth.
The five stocks highlighted above have demonstrated resilience in their financial metrics and business models, earning high scores across various investment strategies.
Further Research
