3 Contrarian Industrial Stock Picks to Buy Before June

NEW YORK (TheStreet) -- June has historically been one of the weakest months for equities. Stock selection -- both buying and selling -- will be critical in the short term.

The stock market in June has averaged a 1.32% decline over the past 10 years, Jonathan Krinsky, the chief market technician at MKM Partners, wrote in a technical strategy report published Tuesday. Meanwhile, July has bounced back, averaging a 1.68% gain, he said.

"June will be here quickly, and it has been by far the worst month for stocks over the last 10 years," Krinsky wrote. "Therefore, some weakness into early summer would not be surprising, but in our view that would set-up a buying opportunity in July,"

"We think this market continues to be two steps forward one step back, where stock selection is more important than market direction," Krinsky added.

The report highlights 40 contrarian stock ideas by screening the Russell 3000 to find 30 stocks that have less than 25% analyst buy ratings, but have bullish charts. The report also highlights 10 stocks that have over 75% analyst buy ratings but have bearish charts.

The buy screen included three industrials sector stocks. Below, TheStreet paired those stocks with ratings from TheStreet Ratings. And when you're done be sure to check out three contrarian tech stock ideas.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Year-to-date returns are based on May 27, 2015 closing prices.

DE Chart DE data by YCharts

1. Deere & Co. (DE)
Market Cap: $32 billion
Year-to-date return: 6.7%
Deere & Company, together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide.

TheStreet Ratings: Buy, A-
TheStreet Ratings said: "We rate DEERE & CO (DE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DE, with its decline in revenue, slightly underperformed the industry average of 11.2%. Since the same quarter one year prior, revenues fell by 17.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, DE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • DEERE & CO's earnings per share declined by 23.4% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, DEERE & CO reported lower earnings of $8.62 versus $9.08 in the prior year. For the next year, the market is expecting a contraction of 36.2% in earnings ($5.50 versus $8.62).
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Machinery industry average. The net income has significantly decreased by 29.6% when compared to the same quarter one year ago, falling from $980.70 million to $690.00 million.

 

 

 

DNB Chart DNB data by YCharts

2. Dun & Bradstreet Corp. (DNB)
Market Cap: $4.7 billion
Year-to-date return: 7%
The Dun & Bradstreet Corporation provides commercial data, analytics, and insights on businesses in North America, the Asia Pacific, Europe, and internationally.

TheStreet Ratings: Hold, C+
TheStreet Ratings said: "We rate DUN & BRADSTREET CORP (DNB) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The gross profit margin for DUN & BRADSTREET CORP is rather high; currently it is at 64.28%. Regardless of DNB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DNB's net profit margin of 10.88% compares favorably to the industry average.
  • DNB, with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Professional Services industry. The net income has significantly decreased by 51.9% when compared to the same quarter one year ago, falling from $85.30 million to $41.00 million.
  • Net operating cash flow has declined marginally to $158.80 million or 1.05% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

 

 

IEX Chart IEX data by YCharts

3. Idex Corp. (IEX)
Market Cap: $6.1 billion
Year-to-date return: 0.5%
IDEX Corporation, through its subsidiaries, provides various pumps, flow meters, other fluidics systems and components, and engineered products worldwide.

TheStreet Ratings: Buy, A-
TheStreet Ratings said: "We rate IDEX CORP (IEX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, IEX has a quick ratio of 2.12, which demonstrates the ability of the company to cover short-term liquidity needs.
  • 48.70% is the gross profit margin for IDEX CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.13% is above that of the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Machinery industry and the overall market on the basis of return on equity, IDEX CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • IDEX CORP's earnings per share declined by 7.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, IDEX CORP increased its bottom line by earning $3.44 versus $3.10 in the prior year. This year, the market expects an improvement in earnings ($3.57 versus $3.44).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.5%. Since the same quarter one year prior, revenues slightly dropped by 7.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

 

 

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