Join our community of smart investors

Over punished quality shares

The US stock market could fall further, but these stocks are worth watching
Over punished quality shares
  • Instruments company still delivers on operating performance, but could get cheaper
  • Subtleties in the US freight and transportation markets could be exploited

On the surface, things don’t look good for America: the US CPI inflation print registered another eye-watering 41-year high of 9.1 per cent and raises the spectre of the Federal Reserve having to hike interest rates even more aggressively than the 75 basis points (0.75 per cent) touted for the end of July. 

President Biden’s trip to Saudi Arabia in a bid to persuade the kingdom to increase oil production and ease energy prices drew derision from the right-wing media outlets (who fondly recall the energy security under the Trump administration). It also drew condemnation from his own party, many of whom would prefer Biden kept up his pariah rhetoric towards the Saudis following the murder of journalist Jamal Khashoggi.

Look beyond the headlines though and there are always plenty of high quality companies in America. With the chances of recession rated at around 40 per cent for next year, it is still right to be cautious for businesses flagged by our recent US quality shares screen, but these companies deserve a place on a watch-list. Right now it would be foolish to discount the S&P 500 experiencing another powerful down-leg, but already there are “baby out with the bathwater” stocks that, even if now isn’t the right time to buy, should be worth keeping an eye on.

In this week's report, analyst Neil Wilson runs the rule over three quality companies that may already have been treated too harshly by the market:

Mettler-Toledo (US:MTD) - the laboratory scales maker is no household name but margin growth has been impressive.

CSX Corporation (US:CSX) - a railroad company with a track history of improving operating ratios.

Old Dominion Freight (US:ODFL) - a trucking company that is “like Burt Reynolds and Jerry Reed trying to do something that they said couldn't be done”.


Download PDF