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.

 

 

 

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