These 10 U.S. stocks have been outperformers in a bear market


Gary Christie


March 27, 2023



Min Read

What are we looking for?

Markets have remained volatile year to date. The SPDR S&P 500 ETF (SPY) remains down approximately 17 per cent since reaching its record high on Jan. 11, 2022, and is up only about 3 per cent year to date. The S&P 500 volatility index (VIX), a popular measure of the S&P 500’s expected annualized change over the next 30 days, remains elevated above 20 at the time of this writing, but down from a peak of 30 last week. Despite a lack of trend in broad indices and increased volatility or “fear” in equity markets, some stocks are bucking the trend and emerging as market leaders in this bear market. We were curious to know which U.S companies are excelling during volatile times.

The screen

We used the Trading Central Strategy Builder to search for outperforming U.S. equities based on price performance, low debt and the effectiveness of management’s ability to allocate capital.

We began by setting a minimum market capitalization threshold of US$5-billion in order to avoid the most junior and illiquid stocks.

Two management effectiveness metrics that are of great importance to us are return on capital (ROC) and return on equity (ROE). Return on capital measures how a company generates earnings relative to the capital invested in its business. We set the minimum ROC at 20 per cent. Return on equity measures how effective management has used invested capital to generate income. We like ROE to be at least 30 per cent.

While we are in a period of rising interest rates, we screened for stocks indicating a debt-to-equity ratio of less than 0.7 in order to filter out companies that are highly leveraged.

In order to find stocks that are trending higher relative to the broad market, the stock price had to be at least 50 per cent above its 52-week low and within 15 per cent of its 52-week high.

Finally, we filtered for the top-rated stocks using Trading Central’s Quantamental Rating method, which rates stocks on a scale of one to 10, with 10 being the most bullish and one being the most bearish. TC Quantamental Rating uses a combination of valuation, growth, quality, price momentum and income as key metrics. In our screen, we set a minimum rating of six out of 10.

We have also included the company industry, P/E, dividend yield, year-to-date and one-year price performance for your reference.

More about Trading Central

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

10 stocks with effective use of capital and low debt

Technology stocks topped our results, confirming the strength of the overall tech sector, which has been the best-performing sector over one month.

Topping our list is Super Micro Computer, a designer and developer of high-performance computer servers and storage solutions. It has the highest TC Quantamental Rating on our list at 7.94 out of 10. U.S. equities with a TC Quantamental Rating of 7 or higher produced a 17.5-per-cent annualized return using a five-year historical period with monthly rebalancing, compared with 8 per cent for the S&P 500, according to our research. Return on capital and equity were at 33.2 and 38.49 per cent, respectively, and it has one of the lowest debt-to-equity ratios on our list at just 0.11. The stock price just posted a new record high today.

Novo Nordisk, a global pharmaceutical company that specializes in the production of diabetes care, has the largest market cap on our list at US$331-billion. The company also has the highest return on capital and equity at 52 and 73 per cent, respectively. The stock price also just posted a new record high today.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central with respect to investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

Gary Christie

Head of North American Research
Gary has over 15 years in financial markets. Prior to joining TC, he served as an equity & derivatives specialist with TD Bank and Bank of America. Gary is regularly quoted in Bloomberg News, conducts many education and market outlook webinars for investment institutions all over the world and has been a guest speaker at the New York Traders Expo.
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