Top 10 Stocks 2nd Half 2024 With Steven Cress
Contributor since 2023 / 1798 Followers
Summary:
- Top 10 stocks for the 2nd half of 2024 from a Quant perspective shared by Steven Cress, Head of Quantitative Strategy.
- Hercules Capital the 1st BDC to make the list, followed by SPX Technologies in the industrials sector.
- General Motors’ straight As.
- Why Super Micro Computer is #2 and a retailer is #1.
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Steven Cress, Head of Quantitative Strategy, shares his top 10 stocks for the 2nd half of 2024 from a Quant perspective (1:12). Hercules Capital, the 1st BDC to make the list (9:55). Industrials sector pick: SPX Technologies (14:40). Kirby, a Quant strong buy with mixed factor grades (19:00). Straight As for General Motors (29:20). PDD Holdings, a 2023 top stock based in China (42:05). Why Super Micro Computer is #2 and a retailer is #1 (45:09). This is an excerpt from a recent webinar.
Transcript
Daniel Snyder: Hello everyone. Daniel Snyder from Seeking Alpha here, joined by the one, the only, Steven Cress, our guide of Quantitative Strategies. And this is exciting, because we were just at Seeking Alpha’s Investing Summit last week in New York City going over this exact topic talking about these 10 stocks and now we finally get to bring it to all of you. So, thank you for taking the time to join us today or watch the replay if you are watching that here on Seeking Alpha as well. Steve, I want to go ahead and bring you on in. How you are doing?
Steven Cress: I’m doing wonderful. Thank you so much for inviting me on today.
DS: Of course. Everybody loves to hear from you. I mean, these top 10 picks that you’ve been doing for the last few years now seem to produce some really nice returns for the people that follow them. So, I’m excited to dive into these 10 stocks today. Maybe the people that are watching right now want to create a Seeking Alpha portfolio and throw some of the tickers in as we go along.
Steve, let’s get started.
SC: Well done, Daniel. All right, so I’d like to start off with just a quick overview on Quant and what our vision is. For many investors, I’d probably say, probably 99% of investors out there, investing in stocks sometimes can be a very emotional decision. And I even know with my own mother, she inherited a stock, and she absolutely refused to sell that stock because she inherited it from her father. And I know there’s a lot of individuals out there like that. They have a deep emotional attachment to stocks.
One of the things we would really like to achieve from a Quant perspective is to eliminate that emotional attachment, because that doesn’t really help you become a good stock picker. What involves becoming a good stock picker, from our perspective, from a Quant world, is using a data-driven process. And what we basically like to do is, evaluate stocks based on their metrics versus the sector, or even its own five-year historical average. But for the most part, what we do with our system is, we really zone in on metrics.
The core metrics we’d like to use are value, growth, profitability, EPS revisions, and momentum. And within the context of growth, value, and profitability, there are a lot of underlying metrics, but for each metric that we’re looking at per stock, we’re comparing that metric relative to the rest of its sector. So, it gives us an instant idea of how that stock looks on that metric versus the sector.
And then when we total up the scores, we can get a directional recommendation to see where it ranks overall versus the sector and the entire stock universe that we cover at Seeking Alpha.
So, that is a little bit of a description of what Quant is. What we try to do is, with Seeking Alpha we take our Strong Buy Quant recommendations and that is driven by a powerful computer process, which I refer to as quantamental analysis, because we’re assessing those 5 core characteristics that I referred to. And from nearly all U.S. equities, our Quant algorithm picks stocks with those strongest collective scores for those investment characteristics.
We assign a weighting and score to those investment characteristics. And I have to say, it’s actually not equal weighted. So, within those core investment factors of growth, profitability, EPS revisions, value, there are some factors that are more predictive than others. And the way we find that out is through backtesting. And when we go through that backtesting process, it gives us an idea of which factors are actually more powerful.
So, our metrics are not equal weighted. Some tend to have a little bit more of a weight than others. And that’s what helps us achieve some of the incredible returns that we have had.
So, as Daniel mentioned, this has been a really cool concept. We’ve been doing it for a few years now. Our top 10 stocks for 2023, so that’s about a year-and-a-half ago, those stocks performed incredibly well.
On it was Super Micro Computer. That’s the top stock that we have there, ticker symbol (SMCI). You could see Super Micro Computer going back to January 5th, 2023 to June 11th of this year, the stock was up 841%. You could see (PDD), which is a Chinese internet retailer, is up 72%.
And then the list just goes down, (ASC) Ardmore Shipping, MINISO (MNSO), Modine Manufacturing (MOD), Jackson Financial (JXN), all with stellar returns. So, the total return from that period of January 5th, 2023, and we take the average performance, but those 10 stocks, it’s up almost 150% from that period.
We did it again this year for 2024. This is the list that we submitted, which came out on December 31st on New Year’s Eve. And you could see this list, the average appreciation is 54% for all 10 stocks. Our number one stock this year was Abercrombie & Fitch (ANF) in terms of the top 10 list here, up 110%; Celestica (CLS) up 86%; AppLovin (APP), a great app used by a lot of developers, up 95%; GigaCloud Technology, (GCT), that was there December 31st. The stock is up 78% since December 31st.
Rolls-Royce (OTCPK:RYCEY) up 55%. Modine Manufacturing up 55%. Facebook (META) was on the list and that’s up 43%. Bank Intesa (OTCPK:ISNPY) up 27%, but it wasn’t all perfect. We had M/I Homes (MHO), which was down 10.9%. I will say that was an absolute stellar stock in 2024. And (LPG), an energy stock is down about 1.2%.
I think what’s awesome about this list and the list from last year, you could see that our winners significantly outperformed our losers. And you could also see there’s a lot of diversification to these top 10 picks. And it’s just the way it falls within our ranking. So, if you were on the Seeking Alpha platform, and you went to Top Quant Stocks or Top Ranked Stocks, you would see that it has fairly nice diversification too.
DS: Now, Steve, I want to make sure before we jump into the 10 stocks for today, the 10 that you’re bringing today are not repeats from previous times, are they?
SC: Well, we have two stocks that are a repeat. And I’m really glad that you brought that up. Because if you went to our platform, amazingly, you see some stocks there that are still in the very top list of the list that were there at the beginning of the year.
And what we wanted to do today is, we didn’t want to have them all repeat. So, we went down the list a little bit. We have some other criteria. We have some market cap restrictions and liquidity restrictions because we want to make this investable for everybody.
So, there are a couple of criteria that we had there. So, if we were to go to the platform and look at Top Quant Stocks, it would look a little bit different. We also threw in a little growth criteria as well for this. So, the names changed a little bit, and that’s just the beauty of the system. It’s a Quant system. It’s data driven, but when you go to the screener, you can make your own changes. And we added a little extra parameters and criteria.
So, the list is a little bit different than you would see if you looked at it right now. There are stocks that would have carried over from earlier in the year, but we wanted to add some new names to it. So, you’ll see some repeats from 2023, a few repeats from 2024, and then some new names entirely.
DS: We should point out too, the repeats shouldn’t be disregarded, right? They’re typically a repeat for a reason, whether the momentum or the growth and the revenues continuing to go. And some of these stocks just continue to grow and the share prices appreciate as a result.
SC: Absolutely. And some stocks hit a very long cycle and we’re hitting these stocks when they’re in the cycle where there is strong growth, where they’re still relatively young and investors haven’t valued it properly, or could be older companies that have reinvented themselves. So, I think the really important thing here Daniel is, Strong Buys are mispriced stocks.
So, when we evaluate stocks on those core metrics, we look for the stocks to be strong collectively, as I mentioned on value, growth, profitability, momentum, and EPS revisions, that Strong Buy rating means that it’s actually mispriced. So, the growth on a relative basis is stronger than the sector. The valuation framework is typically cheaper than the sector or in-line. The profitability is stronger than the sector, momentum is stronger, and the EPS revisions are stronger.
So, what it’s telling us when we add those scores together is that the security is actually mispriced, and that is why it’s a Strong Buy. And a Strong Buy stock could be up 10%, 100%, 210%. That momentum doesn’t really matter because it’s at this point in time that we’re looking at the valuation framework and the growth framework, and we’re still measuring it relative to all the other stocks in the sector. So, that’s what tells us that the stock is a Buy.
It doesn’t really matter that it’s up 50% or 100%. We do look at the momentum factor. And it’s a very, very important factor, one of the highest ranked over a 200-year period in terms of predictability. So, momentum does play into the equation when we select our stocks, but you shouldn’t be afraid of the stocks that have good performance because we’re looking at so many other factors in perspective to that framework of where it is now compared to other stocks in the sector.
So, without further ado, I’m going to take us to the list and we’re going to start with number 10, which is Hercules Capital (NYSE:HTGC). This is actually the first business development company that we brought into our top 10. We haven’t done that before.
It’s a mid-cap company. Market cap is about just a tad over $3 billion; in the financials sector, ranks number 38 out of a whopping 681 stocks. And then within its industry, it actually ranks number 6 out of 92. So, you could see as you’re looking at this, the factor grades are quite strong. It’s almost like a straight A report card with the exception of the last one, Revisions, which is B+, still incredibly strong for the factor grades.
And what I’m going to do is, I’m actually going to take us out of the slide deck and I’m going to take us into Seeking Alpha Premium. And for those who are not familiar with it, this is the Seeking Alpha Premium stock page. And you could see that there’s a lot of information here. And I’m going to help make sense of that information. If you look on the left side, you’ll see analysis. And these are articles that come in from Seeking Alpha contributors.
So, the last couple analysts have had Hold recommendations. You could see some others have had a Buy, but if you look at the upper right hand side, you’ll see the Ratings Summary. The consensus from the Seeking Alpha contributors is a Buy recommendation. Below that, you’ll see the consensus recommendation from Wall Street as a Buy, but on the Quant system, it’s a Strong Buy. And that Strong Buy is based on those factor grades.
Again, it’s a data-driven process. We’re typically not in the business of interviewing management or doing helicopter views of the industry. It’s not what we would refer to as a top-down approach. It’s more of a bottom-up approach where we’re looking at the data and we’re comparing it, as I mentioned a couple of times, to the sector.
The wonderful thing here is that you could actually take a deep dive into valuation. So, you just click on it, and you could actually see the underlying metrics. And as I mentioned, each of those underlying metrics is relative to the sector.
So, when you look at the letter grades, the purpose of that is to give you an instant characterization of where it stands versus the sector. So, if we were to look at P/E, you could see it’s a B+, and currently the stock has a multiple of 9.5x versus the sector at 10x. So, it’s at about a 5% discount to the sector, hence that B- score. On some other metrics, it looks rather expensive, but as I mentioned, we do overweight certain metrics.
A really important metric we use, which is PEG, that’s a combination of P/E and Growth. So, taking two metrics and forming it into one, you could see it’s a B+. And on a PEG basis, you could see it’s at a 52% discount to the sector.
If we take a look at Growth, and we’re just getting over to the right side and click on Growth, you could see the underlying metrics for growth. So, this is one of the reasons. You rarely see a business development company with such strong growth. And that’s why it made it into our top 10 list.
If you look at the Forward Revenue Growth Rate, and I should mention our model looks at history. So, it looks at actual numbers that have been reported, but we also look at forward numbers. So, this is a forward thinking model where we take the consensus revenue and earnings growth rates and EBIT and EBITDA growth rates from analysts, and we put it into our algorithm.
So, the forward revenue growth, you could see it gets an A grade, which means the growth is far superior to the sector. And you could actually see the absolute data point. It’s got almost a 20% Forward Revenue Growth Rate versus the sector at 5%. So, the CAGR growth on this is at a 286% premium. That’s huge for its growth rate. And then if we were to look at the bottom line, the EPS, we could see another A+ here. The EPS forward growth rate is 37% versus the sector at 3.4%.
So, absolutely kicking butt against the rest of the financial sector. And you could take a look at the right-hand side and whether you’re on the main stock page or these individual pages, it will show you the sector, it will show you the industry, and exactly where it ranks within that sector and industry. And this is at the very top.
And it’s got a pretty firm dividend grade card too. If we go to the summary page, and we’re not picking stocks for dividend or dividend yield for our top 10 stocks, it’s focused on capital appreciation, but I will say Hercules has a pretty sweet yield coming in at 7.92%. And that’s a Forward Yield as well.
And we are going to go to the next stock, which is SPX Technologies (SPXC). This company is a bit bigger, about twice the size, at 6.25 billion. It’s in the industrials sector and it ranks number 25 out of 628 stocks in the sector. Specifically, its industry is industrial machinery and supplies and components where it ranks number 3 out of 72.
You may be familiar with this company. It’s not a household name. They supply HVAC and detection and measurement systems. Year-to-date, the stock is up about 35% and over the last 52 weeks it’s 66%. So, investors have definitely validated this company, but they have come in with some stellar numbers. I’m going to take us back to the platform. We’re going to type in SPXC.
Actually, at this point over the last 52 weeks the stock is up 75%, year-to-date it’s up 41%. The valuation is coming in at a D grade. So that means that it’s just a little bit expensive versus the sector, but the rest of the factors that we look at are stellar. Growth is an A+ for this company. Profitability is a B-. Momentum is an A+, and Revisions is an A-.
I’m going to take us right to the growth grade here. And you can get a sense. Again, this is an industrials company, and it’s got really solid growth versus the sector. It’s at about 13% growth versus the sector at about 6.3%, but if you look at the bottom line numbers, absolutely incredible. The year-over-year, EPS number grew at 233%. That just is a huge, huge stat.
And going forward, even though it’s not at the same rate, the Forward Growth Rate is 134%. So, the bottom line for this company is incredibly strong. They’ve had some great earnings.
I’m going to take you to the earnings page. And you could see they just reported on May 2nd, they had a really good beat for bottom line and topline. They came in at $1.25, so they beat by $0.22. And you could see on the top line, they beat by $20 million.
You could see, if you scroll down a little bit, this revisions grade is unique to Seeking Alpha. What we’re doing with the EPS revision grade is, we’re actually looking at the quantity of analysts that are taking their estimate up or down. So, in the last 90 days, four analysts have taken their earnings estimates up from where they were previously and none have taken them down. So, I always like looking at that, especially since it’s really quite proprietary to Seeking Alpha.
Again, stock now actually ranking number 1 in the industry. So, it’s moved up from that when we put the slide deck together, now number 1 out of 72 stocks in industrial machinery and supplies. You could see, not only from a Quant basis, but the contributors love this stock and Wall Street loves this stock, all having a Strong Buy recommendation.
DS: Steve, I want to jump in real quick. I think it’s a great time because I remember when we were at the summit last week, everybody was always asking about the Quant. Well, how often does it update? How often does it update? These grades and that rating updates every morning before the market opens, hours before the market opens.
So, if you ever want to review it day of jump on, check out the symbol page. Everything is fresh for you at all times.
SC: Dan, I’m really glad that you mentioned that. Really when I came up with this Quant system, I really wanted the ability to have a fresh perspective on each stock on a daily basis. And back when I was an analyst, and you were reading a research report, whether it was from Goldman Sachs or Morgan Stanley or Merrill Lynch, you could read a research report that could be dated four weeks ago, two months ago, three months ago.
And to me, it was impossible to make an investment decision on a research report that had data from three months ago. That’s like reading a newspaper article from three months ago. There’s no way that you can make an informed decision based on data that that’s old. And that’s one of the reasons why, when I created this system, it was with the foundation that the numbers would be updated every single day to give you that fresh perspective.
So let’s take us to stock number 8, Kirby (KEX). So, Kirby, around the same market cap size, coming in at 6.7 billion, a Quant Strong Buy. Some of the factor grades are a little bit more mixed here, but when you add them up overall, again, we’re looking at these collectively, and their score comes in quite high.
So, within the industrials sector, this is ranked 23 out of 628, but for Marine Transportation, it’s ranking 2 out of 23. It’s one of the US’s largest inland and offshore tank barge operators, and they transport bulk liquid products along the Gulf and the Mississippi.
You could see for the first quarter, they had a good beat coming in at $1.19, a beat by $0.21, and revenue came in at 808 million. It was up 7.67% year-over-year. When you look at the graphic that we have displayed here, on the bottom end, you’ll see the Quant Rating history. And this gives you a good idea of how that rating has changed over time. And you could see with Kirby, it switches back and forth between Hold and Strong Buy.
The last set of Strong Buys really kicked in just after March. Often, a stock, the rating can change. And sometimes it’ll go from a Strong Buy to Buy or even a Hold. And we really encourage people to have faith in that Hold recommendation. If you own the stock, even if you’ve just bought it, and then the next day or two, it changes to Hold. Hold means Hold, it doesn’t mean Sell. And chances are, in the upcoming quarters, you could have analysts start to take their numbers up again, or the valuation may improve, or the EPS revision could improve as well.
It just takes a couple of slight changes to get it back from that Hold territory into Buy or a Strong Buy. So, we really encourage people to stick to that Hold recommendation. Having said that, if a stock does become a Sell or Strong Sell, that is your indicator to sell the stock. That doesn’t mean Hold. So, I really want people to have faith, if they bought a stock and it has Hold, just take a look at the underlying metrics and that’s the power of Seeking Alpha Premium. And we’re going to go back to that.
We’re going to put in KEX. The valuation is a C that’s in-line with the sector. And when you look at it, you could say, all right, a lot of Cs across the board, but you know what I like here? That PEG is actually an A for the Forward PEG. And as I mentioned, I really like PEG. It’s a metric that we have an overweight on. You could see when you combine the P/E and the Growth Rate together, on a PEG basis, it’s on a 56% discount to the sector.
So, even though that overall value grade is coming in C, when I see something like that PEG so strong, it gives me confidence to Hold on to that stock. If I were to take a look at the growth of Kirby, it’s an awesome picture. Almost straight As with the exception of the revenue for year-over-year and the forward revenue growth rate coming in as a B-, but bottom line, almost straight As for this stock.
And again, we are showing you the absolute data point. So, if you were to look at EBIT year-over-year, it was up 64%. And it’s intuitive, it’s an A, because the sector’s only at EBIT growth rate of 8.4%. So, you could see that Kirby’s at a 656% premium. Hence, when we take a look at all these letter grades here, quite strong for the report card and the overall growth grade coming in at an A.
If we were to take a look at profitability, we could see it’s not quite the same picture, but we can take comfort from the EBIT margin, the EBITDA margin, net income margin coming in as a B; CapEx to sales coming in as an A-; and cash from operations coming in as a B+. So cash from operations is $647 million versus the sector median, which is only at $324 million. So, Kirby almost at a 99% premium in terms of its cash, compared to the sector. So that really speaks out to me as well.
So I’m going to take us to our next slide, which is SilverCrest Metals (SILV). So, you’ll see there’s quite a few industrial stocks here, and I actually like that. The best performing sector and sectors year-to-date really have been communication services and IT. We have noticed as we’re coming up, I guess that half a year now, last year it was really the Magnificent 7 that performed well.
This year, the IT sector and communication services are still outperforming, but really like NVIDIA (NVDA) has been crushing it. So, there’s been a bit of a divergence in the Magnificent 7. NVIDIA is still looking absolutely incredible.
So it really has a feel to it like the rest of the market has not participated. The market like the S&P 500, when you’re looking at the valuation of it, it looks expensive, but if you strip out NVIDIA and the Magnificent 7, it actually doesn’t look expensive at all. So, that’s why I’m really glad that we’re highlighting some of these stocks.
And the performance on these stocks over the last 52 weeks might be strong, but I want to show you the performance over the last month and there’s actually been some weakness in these stocks. And that’s again, perfectly why these stocks are Strong Buy. They’re mispriced, they’re looking good, and I often encourage people to take advantage of price dips when those Strong Buys do pull back a little bit.
So, SilverCrest Metals, as we’ll highlight here, you can see the stock ranks really highly within the industry. It’s number 1 out of 10 stocks. This is a small cap silver and gold miner, and they operate primarily in Canada. The performance has been strong year to date. And I’m going to show you some of the profitability metrics.
So, we’re going to type in SILV. And we’re actually coming right up on the growth page. You could see this has stellar growth versus the rest of the sector. Absolutely stellar. Whether we’re looking at revenue growth or we’re looking at the bottom line growth, EPS coming in 27% versus the sector median at 2.5%.
Just as a reminder, if you want to see the sector and industry, you can scroll over it on the right hand side, you’ll see this is in the Materials sector and the industry is precious metals and minerals, ranking 8 in the sector out of 282 and number 1 in its industry. And you could just see its report card here is all straight As for a topline and bottom line growth. So, looking fantastic there. In terms of profitability for this company, lots of A+s as well.
Gross profit margin coming in at close to 70% versus the sector median at 28%. EBITDA margin coming in at 62%. That is incredible versus the sector at 16%. And then when we look at return on common equity, that is huge. A+ there, 33% versus the sector median at 5.9%. So, profitability looking great for this company. Again, this one across the board, just straight As. So, natural for this to be listed in our top 10 stocks.
Coming in the consumer discretionary sector, Trip.com (TRIP) mega cap company at 32.7 billion. Quant Strong Buy, ranks number 8 in its industry out of 514 stocks in the consumer discretionary sector. And within its industry, it ranks number 1 out of 37. I’m sure many of you are familiar with this company by being online. They are an international travel service provider. Stock is up 40% year-to-date. And they have had incredible beats in the last seven out of eight quarters.
Most recently, and we’re going to take you right to the symbol page. So, you could see over the course of the last 52 weeks, up 42%. I actually love this little feature here. When you just – if you scroll and hover on the dates, if you click on it, it will actually give you the performance for that period. So, this shows you year-to-date, it’s up 34%.
If you looked at it in the last month, it’s down about 7%. And I’m going to highlight this to you on a number of other stocks that have actually been – recently over the last 4 weeks, they have pulled back. And I just think this is a great opportunity to pick up some of these stocks that have very, very strong investment fundamentals.
So again, consumer discretionary industry, hotels and resorts, I’m going to scroll down a little bit. So, if you’re not familiar with the platform, you could see we actually have a seasonality analysis here, which shows you how the stock has traded every month over the last 10 years. And then it will show you the average performance for the month and the median performance. And you could actually see what months are the best performers.
So, on Trip Advisors, you could see it’s up 72%. So, May is typically good. In June, it’s typically been up about 50% of the time. So, that’s a cool little feature. I tend to try to find stocks that have a 90% or 100% hit rate sometimes, and it gives you a little extra juice.
If you scroll down, it will show you where’s the company’s profile. So, if you haven’t used this feature before, you could see on the stock page for every company, it will give you a little bit of a deeper dive into what the company does, and the location as well. You could see this one is based out of Singapore.
But taking us back to our factors, great report card here, the growth rate, monster, monster growth numbers, both topline and bottom line. Revenue growth coming in at 42% on a forward-looking basis. On a bottom line looking basis, if you looked at the year-over-year EPS GAAP, up 565%.
The forward growth rate isn’t nearly as high as the year-over-year. It had a stellar year, but 112% growth for earnings per share versus the sector at 6.5%. I’ll take that any day of the week that could easily fit in to my top 10. Profitability looks really, really strong here as well for both the gross profit margins and some of the bottom line margins for EBIT; net income margin, looking very, very strong for the stock.
Again, that grade, that sector relative grade just gives you an instant characterization of where the stock is versus the sector, but then you could look at the absolute data points too to get a better idea of how it looks versus the sector.
All right, we’re going to take us to our next stock, number 5, lo and behold, General Motors (NYSE:GM). I’m sure this one was a surprise for a lot of people. Obviously, this company is much older, but look at its report card. The factor grades, straight As for General Motor.
Now, it’s in the consumer discretionary sector, ranking number 7 out of 514 stocks. And within the auto manufacturer sector, number 1 out of 31. I got to tell you, Daniel, if you told me a year ago or 2 years ago that General Motors would be on the top 10, I would not have believed you, but the numbers have really come along. It’s a data-driven process. And again, it’s not emotional.
You could be very emotional and you could say, General Motors is an old company, not for me. Those are cars that my dad and my grandfather drove, but they are obviously producing some very popular vehicles again. And the numbers are not lying. Historical numbers are very strong. And the forward numbers look great as well. One of the things I really like about GM is that they just approved a huge share repurchase program. So, they have a lot of cash on hand and they approved a $6 billion share repurchase program, that’s 11% of its market cap.
So, just a tremendous number there. They also had a really strong Q1 earnings allowing – and based off of that Q1, they were able to increase their dividend by 33%. So again, we’re not really focusing on dividend yield or dividend growth, but I’m not going to step away from it. Hercules with a huge yield of 7.8% and General Motors buying back almost 11% of its market cap. You got to love that. So, we’re going to put GM in here. No mistake in that ticker symbol. GM, and we’re going to go to the summary page.
So, you could see over the last year, the stock is up 31%. Year-to-date, General Motors is up 33%. This is probably more than double than the S&P 500, which has been driven really by solely one stock, which is NVIDIA. So, just like a really incredible return, and you haven’t really missed a thing.
When you look at General Motors, look at the valuation, look at the growth, this is straight As. The valuation for this company is incredibly cheap. If you’re looking at it on a P/E basis, the multiple is coming in at 5x versus the sector at 15x, it’s at a 68% discount to the sector.
So, many people might say, well, this is because it’s an old company. It’s been volatile over the years. That’s why it gets out a haircut for its P/E, but when you look at our PEG basis and you combine the P/E and growth, it’s actually at a 57% discount to the sector. It’s really quite strong.
So, let’s take us to the growth. So, here you could see the picture. It’s a little bit more diverse in terms of yellow, green, some red, but again, our metrics are not equal weighted here. When we’re taking a look at the underlying metrics, some have a stronger weighting than others. Remember, this is sector relative.
So, when we’re taking a look at the EPS growth rate, whether it’s the year-over-year or the Forward, that B grade combined with the revenue, it adds up. And then we have a couple As here.
So when we look at dividend per share growth, that dividend growth rate is a really, really powerful factor. When you have a company that’s taking their dividends up and growing it to the extent that General Motors has, where it has an A+ versus the sector, the Forward, this is the Forward, not the historical, the dividend per share growth rate looking forward is 40% versus the sector at 6%. That is a very powerful metric. But if you look at the one year dividend growth rate at 44%, very powerful as well.
So, you take a little bit of its historical dividend growth rate, the forward growth rate, those are outliers, compared to the rest of the sector. Hence, when we total up those scores, you get an A+ for General Motors.
DS: Hey, Steve, can I jump in here on GM? Because you had showed the dividend scorecard down there at the bottom. And I just see that the grade was F for consistency, right?
And I think that alludes to this was one of those companies that cut the dividend during 2020, in the height of COVID, but they’ve reinstated their dividend since, just curious for anybody that’s watching and maybe very focused on dividends, how does that grade calculate? Is there a certain amount of time? Is there anything you might share that we can start to watch that grade and maybe it starts to creep up to that D or C grade?
SC: So, the really important thing about the dividend grades is, you have to keep in mind it’s different than the factor grades and the directional recommendation. When we’re looking at the directional recommendation based on the Factor Grades, we’re looking at the capital appreciation, okay. When we have a Strong Buy, we anticipate that that stock is going to outperform its sector.
When we look at the dividend grade, our primary concern really is dividend safety. So, we don’t look at the dividend grades for capital appreciation. We’re looking to have a measurement of the safety and the growth. And again, as I mentioned, our metrics are not equal weighted. So, when we look at dividend grades, dividend growth and dividend safety are the more important weighted grades in this equation.
Consistency, as you saw when I clicked on it, you could see they did cut their dividend. So, we know this company isn’t consistent. That’s not really what we look at for a good dividend.
What we want to look at for dividend safety are some of these metrics. So, you could see this is what makes me feel more comfortable that they’ll be able to maintain that dividend that they’re paying right now. I like a good dividend history, but history is history, okay. What we need to know is, how it looks right now relative to the rest of the sector.
Even though the overall grade is a B- on some of these really important payout ratios when we’re looking at the cash dividend payout ratio, it’s an A. The dividend payout ratio trailing non-GAAP is an A+. When we look at the free cash flow yield to dividend yield ratio, that’s an A+. Cash flow payout is an A+. So, really very, very strong metrics.
Cash from operations, 21 billion. Okay. Daniel, that’s 21 billion versus the sector at 285 million. Cash per share, $11.49 versus the sector median at $3.53. We know at this point, they’re going to be able to maintain that dividend. So, this is relatively safe.
And I’m going to click on the growth rate. So, you might say, okay, the growth rate last year was incredibly strong. Going forward, it looks incredibly strong. So, you see that right up front. These are not equal weighted in terms of the weightings on them. Some of the weights are stronger than others.
So, obviously you could see when we were looking at growth overall, and we’re telling you that dividend per share growth is important, we’re looking at that number now, and we’re looking at the forward number. Some of the ones that you see in the red here are the five-year dividend growth rates, the 10-year dividend growth rates. Again, it’s nice to have a long-term dividend growth rate, but this company was in the pandemic, okay.
They had to get themselves through it. They did get themselves through it. And now that they’re emerging from it, it’s a heck of a lot stronger than it was 5 and 10 years ago. And that’s what counts. We’re looking at these stocks on a relative basis, and you could see these are mega numbers when we’re looking at the recent period.
So, let me take us to our next stock, number 4, GigaCloud Technology (GCT). This is a really interesting company. They’ve got a really, really unique business model and the stock has been all over the place. So, I will tell you what has not been all over the place are their earnings. They have consistently beat on their top line and bottom line. In the recent quarter, they came in at $0.84. They beat by $0.33 and revenue was up 96%. So, I’m going to just take us right to the stock page here.
Okay. So, what really makes the stock fascinating is, we had this in our top 10 in the beginning of the year too. So, if you bought this stock in December 31st, you’re up 66%. We wrote another report a couple months later.
And sure enough, right after we wrote the report, there was a hedge fund research company that produced a report. They provided it to free, they put it in the press, they called up every single Hedge Fund manager that was out there, and they really did their best to get people to short the stock and put some bad information out there. So, after we wrote that report, the stock came down quite a bit.
So, normally we look at these companies from a data-driven process, but because we had recommended it as one of our top 10 stocks earlier in the year, a lot of our subscribers were saying, hey, did you find out more information on the company?
So we actually did a deeper dive. We actually called up management and we addressed the questions that were in the short report. One of the things that was really interesting in the short report, they hired a private investigator to go to one of the warehouses and the private investigator sat in a car outside and said there was very little activity.
I have no idea why the private investigator just didn’t call the company. So, that’s what we did. We called the company and with one day’s notice, we said, do you mind if we looked at the warehouse? Went to the warehouse. The warehouse was like five Sam’s Clubs. It was absolutely huge. And they had five racks, which is basically like five stories high. All the shelves in the entire place were completely full. It’s as if there wasn’t room for another box.
So we did a deeper dive. We had a call with the management team and we really found them to be quite reputable, but not for anything else, the data is there. This company had a lot of cash. They’ve actually been buying other businesses. They’ve been buying back stock. So, we really continue to like the stock. So, in the last month, you could see it’s down about 3%. We’re really encouraging people to take advantage of the Strong Buy recommendation. Again, a Strong Buy means a stock is mispriced. And when you look at this on a valuation basis and a growth basis, it’s absolutely incredible.
I’m going to click on Growth. And you could see just some unbelievable numbers here. The revenue growth rate year-over-year was up 63%, hence the A+. This is also in the consumer discretionary sector. What makes this company unique is it’s like a combined freight forwarding company, warehouse company, Internet retailer, and in their warehouses, they actually hold the stock for the manufacturers. So, a great way for the manufacturers to avert problems with the supply chain, is actually to manufacture your product.
So, whether you’re manufacturing in Singapore, Japan, the Netherlands, China, you can manufacture there. You ship the product over and GigaCloud actually takes care of the soup to nuts. They take care of the shipping, whether it’s ocean shipping, air shipping, ground transport. They take care of all the shipping, and then it’s stored in the warehouse in, say, the United States, where a lot of the customers are based.
And instead of a manufacturer having to ship something all the way from, say, Asia from an order, it now comes into, like, it could be like a next day order. And they focus on big and bulky items. It could be treadmills, it could be couches, it could be tremendous tables, it could be plows. It’s really big and bulky stuff, and it makes the delivery process much quicker for the end customer.
So they really have a very unique model out there where they’ve combined a couple of platforms that had issues on their own right and through the power of developing really great software; company has about 1,200 employees, and I believe about 260 of the employees focus just on software development for them. So, really, you could see why in recent years, they have been so strong, just great bottom line and top line numbers here, and the valuation is terrific too.
If we look at P/E, it’s only at 11.5x versus the sector at 17.89x. And the forward P/E is at, it’s below 10x. It has a forward P/E of 9.6x versus the sector at 16x. So, on a PEG basis, it’s like off the charts. It’s like 0.06 versus the sector at 0.54. It’s at an 88% discount to the sector on a PEG basis. So, I really like this stock a lot.
Going to take us to stock number 3, PDD Holdings (PDD). This is a stock that we had for one of our top stocks for 2023. This is based in China. And it hasn’t been easy to recommend a lot of Chinese stocks over the last couple of years, but again, this is a data-driven process.
So, if we go to the stock page and we put in PDD, and if you’re not familiar with the company, it’s absolutely huge. The market cap on this is 196 billion. This is a company that a lot of people know.
It’s an internet retailer, but they have a disruptive or a different angle. It’s like a combined home shopping network on its Internet portal. And people really love that aspect. So, it’s a very interactive portal. People come from all over the world to buy goods from them. And you could see, again, looking on a data-driven basis, when we look at the report card for this company, even though we recommended this a year and a half ago, the valuation is a B-. It still looks really attractive.
Within the consumer discretionary sector, it ranks 5 out of 509 stocks. And within the broad line retailers, and I’m going to click on that to give you a view who’s there. You could see there’s, we have companies like, there’s actually quite – what’s fascinating about this is, this is really changed. We’ve actually seen a number of the Asian and Chinese Internet retailers really move up recently.
So, that tells me, we’re actually seeing some really strong growth from companies like PDD, then you have (DIBS), then you have MINISO Group. And then Amazon, actually, everyone’s familiar with that. That comes in at number 6. That’s a HOLD recommendation, but this basically puts it in perspective. You could see it versus eBay. You could see it versus Nordstrom (JWN). You could see it versus Groupon (GRPN). So, I really love this feature where it shows how the company compares versus all the other stocks, whether it be in the industry or the sector.
So that’s just one click away. And what we clicked on was the stock within the industry. From a valuation perspective, on a forward GAAP basis, it’s very undemanding. It’s only 12x versus the sector at 15x. Then on a PEG basis, it looks awesome. It’s A+ there. I’ll click on the growth for PDD. And you could just see it has monster growth rates. The forward revenue growth rate is coming in at 56% versus the sector at only 3.6% for the consumer discretionary sector.
If we look at some bottom line numbers, let’s look at the EPS growth rate coming in at 54% versus the sector at 2.8%. So, I know we looked at this stock a year-and-a-half ago. I know if you took a look at the performance over the last year, it’s up 103%. I’m telling you not to pay attention to that. Look at where the stock is right now from a valuation framework.
We’re looking at where it is now from a growth framework and how it compares to the sector. And that’s what helps you determine what the directional recommendation should be. And in this case, it looks great. Still a Strong Buy.
All right. Let’s take us to stock number 2, Super Micro Computer (SMCI). Here was another stock from 2023. It was part of our top 10 in 2023. It was also our top stock. So, in January of 2023, we issued a report, our number one recommendation for the year was Super Micro Computer. The stock has been absolutely outstanding. I’m going to take us to the stock page. So, a lot of people, again, they’re saying, if you look at the stock over the last 52 weeks, it’s up almost 290%. Why would I chase the stock?
Okay. You’re not chasing that stock. Okay. Momentum, as I said, it’s a really important factor and it’s validating that the cycle is working, that management is working, that the products are working. Okay, that’s what our momentum score tells us. So, we know the company versus its sector is at a far superior place. But do not feel like you’re chasing a stock because what you want to do is look at what the current valuation framework is. And you could see this has really been fairly solid. It’s in the middle of its sector.
The sector is information technology. The industry is technology hardware, storage and peripherals. They make basically storage racks that are super cool. So, if you have NVIDIA chips in servers, they run hot. They got to be super cool. Super Micro makes those type of servers that provide that super cooling environment for very, very fast chips. And when we click on valuation, we could see it’s only a C. So, it’s really right in-line with the sector. And on a PEG basis, it’s far more attractive compared to the sector.
If we click on growth for Super Micro Computer, we see a straight A report card. So, it was growing fast a year ago, it was growing fast two years ago, it’s still growing very, very fast today. And you could actually see, if you look at, by example, the EBIT growth rate, year-over-year was 64%. The forward growth rate is actually higher than the year-over-year growth rate was.
If we take a look at the topline, it’s only a little bit shy for that forward growth rate versus the year-over-year growth rate. So, coming in at a 65% forward growth rate, it demolishes the rest of a very, very fast growing sector. The sector median growth rate is only 6.6%, but a lot of people are in the IT sector. They love IT, the mega tech stock, top 7 stocks in the S&P 500 fall within IT or communication services. And you could see it has a superior growth rate versus the sector, especially on a bottom line.
If we look at the Forward Growth Rate on an EPS basis, it’s at 81% versus the sector at 7%. So, it’s at a 1000% premium to the sector. So, I still continue to like Super Micro Computer based on its data. This is going to take us to our number one stock for half way through the year.
DS: Let’s do it.
SC: Abercrombie & Fitch (ANF), this is not an IT stock. It is not NVIDIA. It is not Apple (AAPL). It is not Facebook. It is a good old fashion retail.
DS: Steve. I’ve got a mission here too. When you announced this one at the summit as well, I remember being in the room and everybody was like, what? Abercrombie & Fitch, are you sure you want to pick this as number 1?
SC: Pretty amazing. I think we have this stock in Alpha Picks, which I will tell everybody what Alpha Picks is. A lot of people who don’t want to do homework will choose Alpha Picks as a product, where you send your two favorite Strong Buys every month. When I put this in there, there was a lot of amazement. People really think of this as like their teenager store from two decades ago. The company has really reinvented itself.
So, I want to take us to the stock page. I’m going to put in ANF, Abercrombie & Fitch. This company has done so well, we thought about nicknaming it when they came out with their earnings. And I’m going to click on the Earnings module over here. So, when they came out with their last quarter on May 29th, the EPS came in at $2.14 and has just consecutively beat it like, quarter-in and quarter-out. They beat by $0.42, revenue beat.
We really thought about renaming the company from Abercrombie & Fitch to Abercrombie & Rich. They have not disappointed. In the last 90 days, 7 analysts have actually taken their earnings estimates up from where they were previously. Nobody has taken it down. So, we’ve just seen a great track record here of the company beating its numbers. So, I’m going to take us to the Growth page.
So, again, this is a consumer discretionary retailer in apparel retail. And look at these numbers, where whether we’re looking at the topline and especially the bottom line, they are absolutely crushing it in terms of their growth rate versus the sector. So, I wanted to highlight that from a growth perspective, it looks great. When you look at the profitability for the company, gross profit margins are huge at 64% versus the sector at 36%.
Net income margin coming in at 9.5% versus the sector at 4.8%. The return on equity is 47% versus the sector at 11%. That is a monster return. Goldman Sachs only wishes they could have a return on equity like that. So, you could see the company coming number 1 in its industry out of 40, and then the overall consumer discretionary sector ranking number 2 out of 509. And I’ll click on that. That’s a big sector with 509 stocks. And you could see the only one that comes in top of it right now is Brinker, which is a consumer discretionary company.
So, this has wedged its way into the top. You can see the ranking there is 4.99. We do like Brinker (EAT) as well. Abercrombie & Fitch though, from a growth perspective, it really has like incredible numbers and great profitability as well. Where Brinker is edging its way in recently is on a momentum basis. So again, Abercrombie & Fitch is looking great there, really at the very top of the model. And I’m going to go back to profitability. And I want to show you the cash per share coming in as an A+ $16.91 in cash per share versus the sector median at $2.46.
So, Daniel, that was it. Our top 10 picks: number 10 Hercules, 9 SPX, 8 Kirby, 7 SilverCrest Metals, 6 Trip.com out of Singapore, number 5 General Motors, number 4 GigaCloud Technology, number 3 PDD Holdings, number 2 Super Micro Computer, and number 1, Abercrombie & Fitch.
Daniel, that about ends it. Do you have any questions for me?
DS: I don’t have any questions for you, but I do want to say that I’ve been watching some of the comments just flying in, there’s a ton of them, but people are just saying how helpful this was.
And then one thing I do need to touch on is Seeking Alpha Premium and Alpha Picks are separate products. They are not commingled. They are for different types of investors. Alpha Picks, like Steve was talking about, you can follow the recommendations, you can get ideas there, or if you’re somebody that wants to jump into the screeners and really explore the Quant more and start to pick by sectors or for something that might be for your portfolio, that’s what Seeking Alpha Premium is really all about. Just want to make sure that we clarified that for everyone before we hopped off here.
SC: Daniel, I’m really glad that you mentioned that. So, these are fresh names that we’re bringing on. We always seem to run into this. Right when we produce the list, a lot of the stocks tend to trade off. I don’t know what it is. Whether we’re looking at the top stocks from 2023 or in the beginning of the year. Again, when we bring these securities on, remember as Strong Buys, that actually means that they’re mispriced. So, you can anticipate that there might be some weakness.
Stocks could fall 5%, 10%, 15%. That’s wonderful because the investment fundamentals look great. It means you’re getting it at a discount. So, you want to take advantage of that. And then you just have to allow some time to come by. We need a couple quarters of positive earnings results to come in before some of these really play out.
And I remember when I did Super Micro Computer in January of 2023, somebody issued a short report. I think within a couple of days, the stock was down 20%. And then it proceeded to go up about 800% after that. I feel sorry for anybody that shorted that stock in 2023.
So Daniel, some really good highlights there. Thank you so much for your time. I hope people can find some new fresh ideas here, and we hope to see you on Seeking Alpha again soon. Thank you.
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