A Quadrix Duo

04/22/2005 12:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Richard Moroney, editor of Upside, focuses on small and mid cap growth and value opportunities. His quantitative ranking system, Quadrix, uses more than 100 variables to rank 4,200 stocks on a scale of 1 to 100. Here are two that score near-perfect ratings.

"Most of our new recommendations earn Overall scores above 80 in our Quadrix system. Our studies have show that the very best scorers historically outperformed consistently, delivered excellent returns, and showed below average risk. Here are two recent buys - one earning a 99 overall rating and the other a 100.

"Commerical Metals (CMC NYSE) has an Overall Quadrix score of 99. Like most steel makers, the company has outstanding operating momentum, along with a cheap valuation that reflects concerns regarding an industry downturn. For its February quarter, Commercial Metals earned $0.91 per share on sales of $1.6 billion, up from $0.35 on sales of $1.1 billion in the year-earlier period. The company raised May-quarter guidance for earnings per share to $1.10 to $1.30 — well above the $0.98 analysts had expected. Like many stocks with very high Overall scores, Commercial Metals is a top-performing company facing Wall Street skepticism. The two-analyst consensus estimate projects per-share earnings will more than double to $4.73 for the year ending August, but a decline to $4.05 is expected the following year. Historically, steel-company profits have been volatile and difficult to predict. Commercial Metals appears well positioned relative to peers, but results are highly sensitive to global steel demand. The stock, trading at nine times trailing earnings, remains a Best Buy.

"General Maritime (GMR NYSE), an oil tanker company, earns the maximum Quadrix score of 100, thanks to strong Momentum (recent operating results), Value (price/earnings and other valuation ratios), Quality (long-term growth rates and returns on equity, assets, and investment), and Performance (stock-market returns over different periods within the past 12 months). The stock will soon offer one more attraction: a high dividend yield. Beginning in late April, General Maritime plans to declare quarterly dividends equal to earnings before interest, taxes, depreciation, and amortization — after interest expense and a reserve for maintenance and expansion. Had the new policy been in place for the fourth quarter, when General Maritime earned $3.70 per share, the quarterly dividend would have been $3.94 per share. Consensus estimates project per-share earnings of $6.35 in 2005 and $4.29 in 2006. The tanker industry is highly cyclical. But, from current prices, the stock remains a Buy based on its 20% total-return potential over the next year."

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