Markets & Finance

Stocks: Six Sell-Off Survivors


Now that the water has calmed after the Feb. 27 sell-off, S&P screens for six stocks that weathered the storm

From Standard & Poor's Equity ResearchInvestors have put aside the champagne and reached for the Alka-Seltzer in recent days. After a long period of worldwide equity strength, global stock markets, including those in the U.S., hit quite a rough patch starting Feb. 27. The sell-off began that day with the nearly 9% one-day stock market decline in Shanghai, stemming from the Chinese government's statement that it will crack down on stock market trading.

And that was just the beginning. News emerged throughout the week that supported investors' fears regarding a global economic slowdown that included yen carry trade, subprime lender woes, and seemingly downbeat comments on the economy from former Federal Reserve chief Alan Greenspan.

However, the tide did not sink all boats. Some issues held up fairly well amid the tumult. We wanted to find those stalwarts for this week's screen. Our thinking: While past performance is no guarantee of future results, these companies may possess qualities that could help them withstand future market downdrafts.

The Filters

We first screened for stocks that were in the top 20% of stock performance over the five trading days following the Feb. 27 market drop. That was a period of heavy equity losses in U.S. markets characterized not just by big price declines, but highly negative market breadth—that is, an overwhelming number of stocks that posted declines vs. those able to advance.

We then narrowed our list to include only those stocks with top rankings under our Standard & Poor's Stock Appreciation Ranking System (STARS). This system is based on fundamental research conducted by S&P's own equity analysts. We filtered the list for those issues ranked 4 STARS (buy) or 5 STARS (strong buy) by S&P analysts, indicating that their total return is expected to outperform that of the S&P 500 index over the coming 12 months, with shares rising in price on an absolute basis.

Next, we turned to our S&P Quality Ranking System, which measures growth in earnings and dividends over a 10-year period. Once again, high marks were required, and the issues on the list had to rank B+ or better.

Another important filter was added: Each stock has a bullish technical rating from S&P's quantitative strategist, Andre Archambault. We also limited the list to stocks priced above $5 per share and with market capitalizations greater than $1 billion to ensure that these were liquid, stable issues.

When we crunched the numbers, these six names emerged:

Company

S&P STARS Rank

S&P Quality Rank

Price (3/7/07)

Church & Dwight (CHD)

4

A

47.03

Enterprise Products Partners (EPD)

4

B+

30.41

Longs Drug Stores (LDG)

4

B+

50.96

PPL Corp. (PPL)

4

B+

37.25

Tractor Supply (TSCO)

4

B+

52.28

United HealthCare (UNH)

4

A+

53.80

Kaye, a chartered financial analyst, is an analyst for Standard Poor's Portfolio Services. He is the author of The Standard Poor's Guide to the Perfect Portfolio: Five Steps to Allocate Your Assets and Ensure a Lifetime of Wealth.

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