What are the best stocks to buy amid a harrowing market that seems determined to deny gains to investors? For smallish $184.8 million Dean Small Cap Value Fund (DASCX), the best stocks to buy are the ones it has long aimed for.
"As traditional value investors, we believe that focusing on high quality companies that are undervalued for transitory reasons can lead to above average returns," fund literature declared. "We believe that risk-adjusted performance can be enhanced by emphasizing stocks which exhibit the best risk/reward relationship (limited downside risk with meaningful upside potential)."
In a nutshell, the fund aims for what manager Steven Roth considers quality stocks, trading at a temporary discount. In addition, Roth wants stocks whose upside potential is much bigger than its downside risk.
Roth is finding enough of those quality names for the fund to handily outperform the market. Going into Wednesday, Roth steered Small Cap Value to a 0.87% decline this year vs. the S&P 500's 15.5% setback and the 9.57% pullback by the fund's small-cap value rivals tracked by Morningstar Direct.
Best Stocks To Buy
Roth's portfolio has lots of pointers when it comes to best stocks to buy. He happens to have assembled a portfolio that, this week, included two members of the IBD 50, 18 stocks with IBD Composite Ratings of 90 or higher, and four stocks with IBD SMR Ratings of A.
A Composite Rating of 90 means that a stock is in the top 10% of all stocks on a number of technical and fundamental factors, including both price performance and earnings. Especially in a volatile market, watch for stocks that have 90-plus Composite Ratings and are forming bases or are in follow-on buy areas. That way, you spot the best-positioned stocks before they start big price runs. Look up a stock's Composite Rating at IBD Stock Checkup.
The IBD 50 is IBD's flagship screen of leading growth stocks that show strong relative price strength and top-notch fundamentals.
IBD SMR Ratings measure Sales, profit Margins and Return on equity. IBD's SMR Rating scale runs A through E. An A score ranks in the top 20% of all stocks based on those gauges.
Boost In Octane
Energy has been the top performing sector in the S&P 500 by far this year, according to FactSet. Most any search for top stocks to buy this year has to visit the energy sector.
Take Murphy USA. The company has revved up total return by 48% this year going into Wednesday. Murphy USA operates a chain of gas stations with convenience stores. It has benefited from rising prices of petroleum products. And it is large enough to undercut prices at smaller convenience stores.
The chain is adding new stores. But it is carrying a lot of debt to help pay for that. The stock's debt-to-equity ratio is a high 223%, according to analysis by MarketSmith. Generally, you want to see 100% or less, showing more equity than debt.
One additional vulnerability is the chain's reliance on sales of smoking products. Smoking is declining in the U.S., according to CDC.gov.
Murphy USA is a member of the IBD 50. It has an IBD Composite Rating of 99. Its SMR Rating is A.
Dividend yield is a modest 0.4%.
Wiring Up The Cable System
The best stocks to buy aren't always sexy. Preformed Line Products is a technology products distributor. The stock has a Composite Rating of 99 and an SMR Rating of B.
The company makes cable anchoring and control hardware and systems. It also makes fiber optic and copper splice closures and high-speed cross-connect devices. Hardware, not sex appeal.
Still, share price is up 22% this year. Its dividend yield is 1%.
Earnings per share grew 238%, 72% and 54% the past three quarters. Annual EPS has grown two years in a row, according to IBD Stock Checkup.
Bringing Players Together
Which additional holding deserves at least a look-see among best stocks to buy? How about one that's up 53% so far this year? That's what financial services network StoneX Group has achieved.
The company provides risk management, foreign exchange, securities execution and commodity trading services.
StoneX describes itself as an institutional-grade financial services network. It connects companies, organizations, traders and investors to the global markets ecosystem. It does so through a web that includes digital platforms and end-to-end clearing and execution services.
EPS grew 64%, 16% and 54% the past three quarters.
EPS is forecast to grow 381% this quarter and 50% this year.
The stock's Composite Rating is 98. It has an SMR Rating of B.
Best Stocks To Buy: By The Numbers
So, you can glean guidance about the best stocks to buy from Dean Small Cap Value Fund. What about considering the fund itself for the diversified portion of your portfolio over the long term? You be the judge.
Over the past 10 years the fund's average annual return is 10.42% vs. 13.22% by the S&P 500 and 9.43% on average by the fund's U.S. small-cap value rivals.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively managed funds that outperform.
