Stocks that have done nothing for years are often called dead money by investors. Many dead money stocks are value traps that lure investors in only to frustrate them. But there are a few turnaround candidates that can perform strongly, and ’s is using a stock screen to predict which dead money stocks are ready to come alive.
The Current Situation
The recent lead-coated telecom cable issues reported on by The Wall Street Journal have thrown into sharp relief the issue of dead money. Verizon (ticker: VZ) and AT&T (T) shares are down 11% and 16%, respectively, over the past three months, leaving both with single-digit price-to-earnings ratios and near-8% dividend yields. Tantalizing, but those two have lost investors about 4% a year on average for the past five years while the S&P 500 and Dow Jones Industrial Average have returned about 11% and 9% a year on average, respectively.
Is There a Chance for a Turnaround?
Are they ready to turn around though? Wall Street doesn’t think so. About 19% of analysts covering Verizon stock rate shares a Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. What’s more, the Buy-rating ratio for Verizon shares is essentially unchanged over the past year. Not a very compelling case for a turn.
The metrics for AT&T stock look similar although 30% of analysts covering its shares rate them a Buy, a little higher than Verizon.
Promising Stagnant Stocks
Other stagnant stocks are more promising. ’s looked at stocks in the Russell 3000 Index that have done, essentially, nothing for the past five years and identified 10 stocks where improving analyst sentiment could signal better days ahead.
Introduction
The List of Value Stocks
The ten value stocks, listed in no particular order, are:
- Harley-Davidson (HOG) – A renowned motorcycle maker.
- TreeHouse Foods (THS) – A leading packaged food manufacturer.
- Biocryst Pharmaceuticals (BCRX) – A biotech firm specialized in pharmaceuticals.
- Lazard (LAZ) – An investment bank.
- Scotts Miracle-Gro (SMG) – A prominent lawn care giant.
- Biogen (BIIB) – A biotech company.
- Quaker Chemical (KWR) – A manufacturer of lubricants.
- Bank of New York Mellon (BK) – A trusted financial institution.
- Spotify Technology (SPOT) – A popular music streaming service.
- United Airlines (UAL) – A well-known airline company.
Performance Analysis
Over the past five years, the average annual returns for these stocks have ranged from a 1% gain to an 8% loss, which may be considered subpar. However, the stocks are gaining favor among analysts. These value stocks typically have low price-to-earnings (PE) ratios, with the average PE ratio for 2024 earnings estimated to be around 12 times, compared to the market’s average of 18 times.
Reasons for Optimism
Although only a few of the ten stocks have increasing earnings estimates, there are positive signs for some. United and Quaker have seen analysts raise their earnings estimates for 2024, indicating potential growth. Additionally, Lazard is undergoing management changes, with new CEOs and top managers being appointed. Such changes can often serve as a catalyst to reevaluate the potential of stocks. TreeHouse’s recent second-quarter financial results have also led to an upward revision of its full-year 2023 guidance.
Analyst Sentiment
While it is difficult to pinpoint the exact reasons for the growing optimism surrounding these stocks, overall, analysts are becoming more positive. Their expertise and close monitoring of the companies make their recommendations valuable.
Conclusion
A stock screen is merely the first step in identifying potential investment opportunities. Once the list is narrowed down, investors must conduct thorough research and analysis before making informed investment decisions.
Sources: Bloomberg, FactSet
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