I had an interesting conversation recently with Greg Forsythe, who is the mastermind behind Schwab Equity Ratings, a quantitative system for identifying stocks likely to outperform in the coming years. Portfolios developed from his list of A-rated stocks (which usually seem like an unlikely bunch when you look at them) have consistently outperformed the market over time.
In late January, Schwab released a list of ten A-rated stocks, one from each sector. These names aren’t supposed to make up a complete portfolio, but just suggest some ideas for further investigation. Forsythe calls them simply, “a diverse set of stocks which we think are attractive at this point.”
Many of today’s A-rated stocks are mid-to-large cap, while many F-rated stocks are small-cap names -- an indication that stocks of small companies are getting expensive, says Forsythe. Furthermore, A-names are often companies that were either involved in a controversy or are part of a turnaround, which makes them contrarian bets.
“A number of these stocks have something that might make investors cautious,” Forsythe told me. “That probably contributes to their relative under-valuation in our point of view.”
Without further ado, here’s Schwab’s list of 10 “interesting” stocks:
Becton Dickinson (BDX)
Duke Energy (DUK)
Electronic Data Systems (EDS)
Exxon Mobil (XOM)
Newell Rubbermaid (NWL)
PPG Industries (PPG)
What do you think of the list? Please, let me know.
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