What the Market Wants: 3 Mundane Stocks with Great Numbers

We’re off to a good start to a new week after last week’s good finish. The domestic markets are up more than 1% midday, based on a possibility of compromise in Syria. Rumors have it that Russia has suggested that Syria place its chemical weapons under international control to avoid missile strikes. Further rumor is that Syria welcomed the proposal.

Too good to be true? Perhaps but does seem like a practical way out of the mess for everyone. At least a possible beginning.

Unsurprisingly, the market welcomed the news in Asia overnight, in Europe this morning, and finally here in the US. The US markets are in their 5^th consecutive up-day with gains in all major indices. Small-cap growth was the favorite style/cap last week and is leading again this morning.  Last week all style/caps were up with large-cap value trailing but up a solid 1.3%.

From a sector viewpoint, Basic Materials led the way as it usually does in recovering markets, with all sectors in positive territory except for Utilities which continues weak due to the rising treasury yields.

Here are the market stats.

Economic news was fairly good last week with employment data somewhat better than expected. Factory orders were weak but better than expected, and the remaining data was okay. This week, retail sales, due on Friday, should have the most impact in an otherwise quiet week of economic data.

Before we get too excited about the possible positives from Syria, let’s keep in mind that we have some very-near-term domestic economic battles in Congress, including the debt ceiling and a number of other contentious issues between our two political parties and our President. They should all be “front and center” over the next month so I would not start the parade just yet.

For stock ideas, we looked for conservative, if somewhat boring, companies with solid earnings expectations for this quarter and next and reasonable valuations. They are primarily from the small-cap landscape which has consistently led the past year’s market growth.  We found three that fit our goals. Hope you enjoy taking a look.

3 Stock Ideas for This Market

This week’s selections are all small-cap stocks with great numbers, despite the fact that they’re in rather mundane industries.

Employers Holdings, Inc. (EIG) - Financial Sector - Small-cap
EIG operates in the commercial property and casualty insurance industry in the United States, providing workers compensation insurance coverage to small businesses in low-to-medium hazard industries.

EIG has had positive, double-digit earnings surprises in three of last four quarters, and analysts have raised estimates for this quarter and next, and this year and next. Projected earnings growth is three-digits-plus for this year, high two-digits for next year, and settling into a steady 10% per year growth over the next five years.  Website: www.eig.com   Price when selected on September 9, 2013 (3:20 pm EDT):  $28.46

American Woodmark Corp. (AMWD) – Consumer Cyclicals – Small-cap
American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets in the US. AMWD has had impressive positive earnings surprises in the last four consecutive quarters. Projected earnings growth is triple digits for this quarter, next quarter, and this year; 40% for next year, then settling into a steady 8% per year growth over the next five years.  Website: www.americanwoodmark.com  Price when selected on September 9, 2013 (3:20 pm EDT):  $36.21

Federal Signal Corp. (FSS) -- Consumer Cyclicals – Small-cap
Federal Signal is a global designer and manufacturer of products and total solutions that serve municipal, governmental, industrial and institutional customers, including safety and security systems, environmental solutions, and fire rescue solutions. FSS has had positive earnings surprises in three of the last four quarters. Projected earnings growth is 94% this year, then tapering off to a steady 7% per year growth over the next five years.   Website:  www.federalsignal.com   Price when selected on September 9, 2013 (3:20 pm EDT):  $ 12.72.

Until next week,

David Brown
Chief Market Strategist
Sabrient Systems
Leaders in Investment Research
 

http://www.sabrientsystems.com

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Full disclosure:  The author does not hold positions in any of the stocks mentioned in this article.

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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