What are we looking for?
High-quality U.S. stocks identified through a quality-factor investment approach
The U.S. equity market has recently rebounded 17 per cent off its most recent 52-week low – after falling 21 per cent from its record high back in February – amid heightened volatility and economic uncertainty. The S&P 500 Volatility Index (VIX) surged to around 60 and is now down to approximately 24. After a period of choppy trading and a brief recovery driven by strong earnings from major technology companies, concerns over a surprise contraction in U.S. GDP have kept investors cautious. In this current market environment, we screened for U.S. stocks that have the potential to weather a market correction should volatility increase, focusing on quality names identified through a factor investing methodology.
Quality-factor investing promotes a disciplined, data-centric methodology for stock selection. This strategy prioritizes companies demonstrating consistent profitability, strong balance sheets, and operational resilience, which historically deliver stable performance across market cycles while offering dividend income and downside protection during downturns
The screen
Trading Central’s research team applied its Quality Factor methodology to identify top-tier U.S.-listed stocks characterized by strong financial health and steady profitability. The screening process began by setting a minimum market capitalization of US$5-billion, focusing on established companies that typically offer lower risk and volatility compared with smaller firms.
The next step involved filtering for stocks with a minimum Trading Central Quality Factor rating of 70 out of 100. This proprietary rating system, developed by Trading Central’s quantitative analysts, evaluates a company’s financial strength by assessing profitability, balance sheet stability, and the consistency of earnings.
To further refine the selection for momentum, only companies trading within 10 per cent of their 52-week high were included, highlighting stocks with potential upward price trends.
For comprehensive analysis, each stock’s price-to-earnings ratio, dividend yield, year-to-date, and one-year returns were also provided for reference.
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options, and commodities. Strategy Builder, our stock screener is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is UGI Corp. UGI-N, a Pennsylvania-based energy distribution and services company, owing to its combination of attractive valuation, strong performance, and high-quality fundamentals. The stock trades at a low P/E of 12.89 and offers a dividend yield of 4.57 per cent, providing both income and value appeal. Year-to-date, UGI has gained 15.9 per cent, and it’s up 26.7 per cent over the past year, showing steady momentum. With a quality factor rating of 79 and trading just 4.9 per cent below its 52-week high, UGI stands out as a well-rounded candidate for investors seeking stability in a potentially more volatile market. Operating in the regulated utilities sector, the company’s earnings profile is typically more defensive, a trait that could prove beneficial if market sentiment shifts.
Abbott Laboratories ABT-N, a global leader in medical devices and instruments, stands out this week for having the highest TC Quality Factor rating on the list at 91 out of 100. This rating reflects the company’s exceptional financial strength, consistent profitability, and robust balance sheet. With a market capitalization of US$226-billion, the highest on our list, Abbott’s scale and diversified product portfolio position it well to capitalize on continuing advancements in health care technology and demand for innovative medical solutions. Its strong quality rating underscores its resilience and attractiveness as a quality-factor investment in the medical devices sector.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had an impressive 27-per-cent annualized return compared with 14 per cent for the S&P 500 index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
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