Stock of the Week: The Solution for a Shaky Market
Alpesh Patel|October 16, 2023
Global tensions are high, and market volatility is up.
So I’ve found a stock that should put investors’ minds at ease.
It’s a $17 billion engineering solutions company with $15 billion in annual revenue.
But even better… it is undervalued… has low volatility… and has historically done well in October and November.
And get this… While the S&P 500 has dropped over the past month… this stock has risen a steady 5%.
Get the details on the company – including its ticker – in my latest video.
Click on the image below to watch it.
Hello, friends. And welcome to another enthralling, exciting, informative, energizing Stock of the Week. (Yes, I’ve been on the coffee.)
This week’s company is Jacobs Solutions (J).
Now, as you know, I’m Alpesh Patel. I run a hedge fund. I have a team of people who help narrow down the companies I should pick for my Stock of the Week. I then go through that list and work out which ones may well catch my attention and are worth talking about… but also ones which will give us a good basis on which, not just to give you a stock, but to educate.
So, Jacobs Solutions, formerly Jacobs Engineering Group, provides engineering, design, procurement, construction and maintenance services, as well as cyber engineering and security solutions.
That caught my eye initially, but it was really the numbers that got me excited. Because as you know, once I look at the top-down view… and Jacobs is involved in healthcare, transportation, water, technology and chemicals, so it’s well diversified from any market turndown… the company nevertheless also has some solid numbers.
So let’s have a look at some of those.
It has $15 billion in revenues, and there are 60,000 people in the company.
The stock has been doing rather well of late, which is important given that in the last few months, the market hasn’t been doing too well.
The market cap is just over $17 billion.
Now, when I look at the specific numbers… and it’s really the numbers which catch my eye and are most important to you…
On my Growth-Value-Income score – which, remember, is a proprietary algorithm we use to go through a company’s balance sheets, cash flow statements, and profit and loss statements to see whether it meets my criteria on growth, value, income, all those factors – the company rates high enough for us. Now, 7, 8, 9 or 10 meets the minimum criteria, which this does.
The forecast P/E ratio – in other words, the current share price to forecast profits – is only at a multiple of 18, which isn’t too bad.
Cash return on capital invested (CROCI) could be higher. For those of you who are GVI Investor subscribers, you’ll know that I apply far more stringent criteria when it comes to my stock picks, but my Stock of the Week videos just give you that extra bit of Know-How in terms of what types of things we’re looking for.
So CROCI – you can see why it’s important here – which was invented by Deutsche Bank and is used by Goldman Sachs Wealth Management, is a little bit low at 3%. But at least it’s not negative, so the company’s generating cash. That’s the positive thing.
Momentum has been quite strong.
Sortino, a measure of reward, or average performance, versus the volatility, or risk, of missing it, is 0.45. My minimum is about 0.3, so that’s good.
Volatility is only 10%, so good in that regard. Not a very volatile stock, and I like that about it.
When I look at the chart, I see the monthly MACD – which is very important to me for the longer-term outlook, not just the fundamentals – flattened around April, June, July, and is now just starting to rise.
The stock has been basically defying the broader market direction as well. All very good signs.
Seasonally, October and November tend to be very good months for it as well. So we should get a pretty good strong start for the company.
On a discounted cash flow basis, it’s trading 43% below fair value despite expected growth in profits and therefore looks like it’s ticking many, many – and certainly enough of – our boxes for it to merit being a Stock of the Week.
I hope you enjoyed it. I know, I did a week where I didn’t mention AI. I don’t always mention it… but actually, the company is keeping a close eye on AI developments as well. But I didn’t want to sound like a parrot or a broken record.
Enjoy your week ahead.