Stocks ended the week mixed, with only the Nasdaq composite index closing positive for the day. The S&P 500 was poised to snap its longest losing streak of the year, which was three days, but a small loss makes it four in a row. Investors appear pleased with Treasury Secretary Janet Yellen’s push for more stimulus, yet continue to be concerned with rising rates.
Yields are rising as the economy seems to be improving, and more stimulus will provide another injection of support. It’s not a question of if, but when the new bill is passed and signed by the President. The stimulus package should drive stocks higher, especially consumer-facing cyclical stocks. With more money in the bank, I expect people to spend more which should benefit companies whose success is tied to consumer spending, such as PPG Industries (PPG), Snap-on Incorporated (SNA), and Timken Company (TKR).
But before I get into evaluating those stocks, let’s take a look at the recent performance of the markets.
Stocks in all three major indexes were trading higher this morning after Treasury Secretary Janet Yellen pushed for more stimulus yesterday. But the indexes soon reversed course to end the day with very little change from yesterday’s session, in what has been in line with choppy trading over the past few days.
After hitting a record high on Tuesday, the S&P 500 has been trending downward over the past few days as investors have become more concerned with elevated valuations and rising bond yields. The 10-year Treasury yield rose to 1.34% today, up from 1.29% yesterday and 1.09% at the beginning of February. There are also concerns about rising inflation that seems to be spooking investors.
While trading may be volatile over the short term, there’s no question investors are betting on an improving economy over the next few months. With the expected fiscal stimulus and more restrictions being lifted, the future looks bright. The S&P 500 is only 1% off its 52-week high, and once passed, the stimulus package should help drive stocks another leg higher.
That’s certainly the case for consumer cyclical names. The current proposal would provide a large percentage of the population with $1,400 stimulus checks. In addition, we should also see $400 in federal unemployment benefits and a gradual increase in the minimum wage to $15 an hour. The package will provide plenty more cash for spending and, in many cases, more money for investing, driving the market higher.
As the economy reopens, the following three companies are primed to see their sales rise.
PPG Industries (PPG)
PPG is the world’s largest producer of coatings. It also sells paints, chemicals, specialty materials, glass, and fiberglass to a wide variety of end-users, including the automotive, aerospace, construction, and industrial markets. In fact, the company is involved in most architectural paint markets around the world.
As long as there is a strong demand for U.S. housing and new home construction continues to rise, there should be strong demand for architectural paint, especially PPG’s products. The company should also see growth opportunities through acquisitions, and a strong recovery in the industrial market through auto refinish and aerospace.
PPG has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Value Grade of B due to its low valuation for a company with a strong growth outlook. The company has an attractive forward P/E of 19.30. PPG also has a Quality Grade of A, indicating a rock-solid balance sheet. As of the end of the last reported quarter, PPG had $2.1 billion in cash, compared with only $675 million in short-term debt.
We also grade PPG based on Growth, Momentum, Stability, and Sentiment, which you can find here. PPG is ranked #17 in the Chemicals industry. If you would like to find other top-ranked stocks in this A-rated industry, click here.
Snap-on Incorporated (SNA)
SNA is a manufacturer of premium tools and software for professional technicians. Its hand tools are sold through franchisee-operated mobile vans that serve auto technicians who purchase tools at their own expense. Its end markets include automotive repair, vehicle dealerships, and other industries such as aviation, agriculture, and government.
The company is poised to benefit from aging vehicle fleets and an increased need to improve technician productivity. In addition, as any mechanic can attest to, vehicles continue to need specialty tools and sophisticated diagnostic solutions, especially with new technology in the automotive market. The company has a strong reputation and should gain market share in the industrial tools and high-tech diagnostic equipment markets.
SNA has a Buy rating in our POWR Ratings system. It also holds a Value Grade of B, which is not surprising with a P/E of 17.7 and a Price to Book of 2.8. Like PPG, SNA has a Quality Grade of A as well. This makes sense with a current ratio of 2.7 and a debt to equity of only 0.4. If you would like to access SNA’s grades in the Growth, Momentum, Stability, and Sentiment components, click here.
SNA is ranked #18 in the Home Improvement & Goods industry. This A-rated industry has other top stocks, which you find by clicking here.
Timken Company (TKR)
TKR is the largest manufacturer of tapered roller bearings in the U.S. It is also a leading manufacturer of power transmission products, gear belts, and chain-related products. It sells its products through a network of authorized dealers to end-users or directly to original equipment manufacturers. Its end users entail everything from automotive to energy to cement industries.
The company has benefited from improving industrial markets and strong inroads in renewable energy and marine. TKR also continues to pursue acquisitions to expand its portfolio and capabilities across various markets. For instance, its diversification into the renewable energy market is becoming an integral part of its business. We all know how big a growth market renewable energy is, so I expect great things from this company.
TKR has an overall grade of A or a Strong Buy rating in our POWR Ratings system. The company has a Sentiment Grade of B, indicating that it is well-liked by Wall Street analysts. Ten out of twelve analysts that cover the stock rate TKR as Buy or Strong Buy. The stock also has a Value Grade of B, as it appears to have high upside potential, based on its average analyst price target.
If you would like TKR’s Growth, Momentum, Stability, and Quality grades, make sure to visit this link. The company is ranked #2 in the Industrial – Manufacturing industry. For other top-ranked stocks in this A-rated industry, click here.
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PPG shares . Year-to-date, PPG has declined -4.86%, versus a 4.32% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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