How does one find bargains in the market?
Eddy Elfenbein of Crossing Wall Street suggests that investors start by examining two factors: a stock’s dividend yield, and its amount of debt relative to equity.
Performing such a screen will generate stocks that are attractive in terms of their yield — which may hint at low valuations — but may be less risky than other high-dividend stocks, especially in an environment in which the Federal Reserve is raising interest rates.
“Basically, it gives you companies with fiscal health, and also with good valuations,” Elfenbein said Thursday on CNBC’s “Trading Nation.”
Performing this screen now brings up names such as Johnson & Johnson, BlackRock and Chevron.
While he would stay away from the energy stocks this picks up, because he fears their dividends are not sustainable, Elfenbein does like Johnson & Johnson, which has been a consistent dividend-raiser.
Of course, one downside of using publicly available information to make investment decisions is that it’s, well, publicly available.
The prevalence of screeners like this may be one reason that Johnson & Johnson and BlackRock, which don’t have a whole lot to do with each other business-wise, trade nearly in lockstep, suggests Evercore ISI technical analyst Rich Ross.
“That just speaks to the proliferation of these screens that use the same type of factors that Eddy is looking for,” Ross said Thursday. “So people are trading companies based the stats — not necessarily on the companies themselves.”
Still, Ross likes the names relative to the S&P 500, saying the J&J and BlackRock are “two names you can buy in an uncertain world.”