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Best And Worst Q1’16: Large Cap Value ETFs, Mutual Funds And Key Holdings

The Large Cap Value style ranks second out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Large Cap Value style ranked first. It gets our Neutral rating, which is based on aggregation of ratings of 46 ETFs and 915 mutual funds in the Large Cap Value style. See a recap of our Q4’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Large Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 8 to 1021). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Value style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Four ETFs are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Legg Mason BW Dynamic Large Cap Value Fund ( LMBGX , LMBEX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The FlexShares Quality Dividend Index Fund (NYSEARCA: QDF ) is the top-rated Large Cap Value ETF and the Brown Advisory Equity Income Fund (MUTF: BAFDX ) is the top-rated Large Cap Value mutual fund. Both earn a Very Attractive rating. The Global X Super Dividend US ETF (NYSEARCA: DIV ) is the worst-rated Large Cap Value ETF and the Copeland International Risk Managed Dividend Growth Fund (MUTF: IDVGX ) is the worst-rated Large Cap Value mutual fund. DIV earns a Neutral rating and IDVGX earns a Very Dangerous rating. Eaton Corporation (NYSE: ETN ) is one of our favorite stocks held by KDHIX and earns an Attractive rating. Eaton was featured as a Long Idea in December 2015. Over the past decade, Eaton has grown after-tax profits ( NOPAT ) by 14% compounded annually. The company currently earns a 9% return on invested capital ( ROIC ), up from just 4% in 2009. Despite long-term improvement in fundamentals, ETN remains undervalued. At its current price of $57/share, ETN has a price to economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects Eaton’s NOPAT will permanently decline by 10% from current levels. If Eaton can grow NOPAT by just 7% compounded annually over the next decade , the stock is worth $70/share today – a 23% upside. Advance Auto Parts (NYSE: AAP ) is one of our least favorite stocks held by Large Cap Value ETFs and mutual funds. AAP earns a Very Dangerous rating and landed on February’s Most Dangerous Stocks list. From 2010 to the last twelve months, Advance Auto Parts’ NOPAT has declined by 2% compounded annually. Over this time, Advance Auto Parts’ ROIC has declined from 12% to 5%. With the continued deterioration of the business, AAP is overvalued. To justify its current price of $153/share, Advance Auto Parts must grow NOPAT by 10% compounded annually for the next 15 years . This expectation is at odds with Advance Auto Parts declining profitability over the past few years. Figures 3 and 4 show the rating landscape of all Large Cap Value ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Hewlett Packard Enterprise Jumps 15% As Earnings Edge Views

Hewlett Packard Enterprise ( HPE ) stock rocketed 15% in morning trading on the stock market today . Late Thursday HPE edged above earnings-per-share expectations for its fiscal Q1 ended Jan. 31, met on revenue and roughly met views with its Q2 earnings guidance, while also promising to return more capital to shareholders. For Q1, the company posted EPS ex items of 41 cents, down 6.8% from pro forma earnings of 44 cents a share in the year-earlier quarter. Sales fell 3% to $12.7 billion. For Q2, HPE expects EPS ex items of 39 cents to 43 cents. It didn’t give revenue guidance. “All in all, the headline news looks like a solid report from a top/bottom-line perspective,” Daniel Morgan, a vice president of HPE shareholder Synovus Trust, told IBD via email. On Wednesday, the company filed with the SEC to change its pro forma figures for the year-earlier quarter, which it issued after its Nov. 1 split from the legacy Silicon Valley pioneer Hewlett-Packard Co. HPE contains the business software and services, servers, storage and cloud-migration operations of the old company, with the new HP Inc. ( HPQ ) taking the PC and printer business. HPE now has more freedom to battle broad-based business-technology providers such as IBM ( IBM ), Cisco Systems ( CSCO ) and Oracle ( ORCL ). HPE changed its year-earlier figure for EPS minus items to 44 cents, from 48 cents. It didn’t change its pro forma revenue figure. Analysts polled by Thomson Reuters had expected adjusted EPS of 40 cents for fiscal Q1, though it’s unclear if that consensus estimate would have changed with the new pro forma figure. Analysts expected revenue of $12.68 billion. For Q2, analysts had modeled EPS ex items of 42 cents on sales of $12.3 billion. The company’s fiscal 2016 EPS ex items guidance of $1.85 to $1.95 met the views of analysts polled by Thomson Reuters. And HPE maintained its fiscal 2016 guidance on free cash flow — cash from operations minus capital expenditures — of $2 billion to $2.2 billion. HPE shares fell 2.2% to 13.60 Thursday. The stock, which debuted in early November, peaked Dec. 1 at 15.88. Looking for ways to speed growth and improve shareholder value, the Hewlett-Packard split came in the face of faster-growing competition from upstarts leading the way to cloud computing. Last week, HP Inc. said its Q1 EPS and sales each fell 12%, to 36 cents and $12.2 billion. HPE Says Sales In Constant Currency Rose For All Segments “During our first quarter as an independent company, we saw the progress that comes from being more focused and nimble,” HPE CEO Meg Whitman said in the company’s earnings release. Whitman also serves as chair of HP Inc. and had been CEO and chairwoman of the former Hewlett-Packard Co. before engineering the split-up. “We delivered a third consecutive quarter of year-over-year constant-current revenue growth, and excluding the impact of recent M&A activity, we saw revenue growth in constant currency across every business segment for the first time since 2010,” she said. Revenue rose 4% year over year in constant currency, the company said. HPE CFO Tim Stonesifer said in the earnings release that the company will “return at least 100% of our free cash flow outlook to shareholders” in fiscal 2016, after devoting $1.3 billion to share repurchases and dividends in Q1. The networking business was the clear winner last quarter, and in fact the only business that notched revenue growth. The company said its Enterprise Group overall rose 1% to $7.1 billion in revenue, with a 13.4% operating margin. Networking sales jumped 54% from the year-earlier quarter — more than 60% in constant currency — but storage revenue fell 3%, and tech services tumbled 9%. Also slipping were server sales, albeit by just 1%. Before the release, shareholder Morgan, of Synovus Trust, told IBD he was “looking for stabilization in areas of weakness (by) expecting strength in servers into next year, as cloud and Big Data growth spur purchases. Servers represents 48% of the Enterprise (Group) segment’s revenue and was (up) 5% year-to-year last quarter.” HPE’s separate Enterprise Services segment sales fell 6% to $4.7 billion, the company said. Infrastructure tech outsourcing sales fell 8%, while application and business services revenue slipped 3%. Software services fell 10% to $780 million. License revenue fell 6%, support fell 13%, professional services revenue contracted 7%, and software as a service (Saas) sales fell 9%. Financial services, which help customers pay for their purchases, fell 3% to $776 million. In its filing with the SEC on Wednesday, the company said the main differences with its new pro forma EPS number for the year-earlier quarter “are related to cash acquired and debt incurred by HPE just prior to the distribution (of new shares to old shareholders). The primary differences between the previously provided figures and adjusted cash flow from operations and adjusted free cash flow are related to prepaids, deposits and liabilities associated with property, plant and equipment, pension obligations and income tax asset and liabilities that transferred to HPE from its former parent just prior to the distribution.”

IBD 50’s Broadcom Jumps Into Buy Range, Ambarella Down On Earnings

Apple ( AAPL ) supplier and IBD 50 list growth stock Broadcom ( AVGO ) opened sharply up Friday, jumping into buy range. Thursday afternoon the company’s quarterly report beat estimates despite slowing iPhone sales. In midmorning trading Friday Broadcom was up 6%, near 146 — putting it now at the top of buy range from a double-bottom base with a buy point of 138.79. Several high-rated chipmakers have been approaching buy zones lately with the market returned to an uptrend, including the two chipmakers on the IBD 50 list: Broadcom and Nvidia ( NVDA ), which makes chips for computation-intensive processes including graphics, gaming and self-driving cars. Ambarella ( AMBA ) stock was down more than 5% in the stock market today , after the maker of image-processing chips issued disappointing revenue guidance Thursday afternoon while topping views for its fourth quarter. Friday analysts lifted price targets for Broadcom and lowered them for Ambarella. Ambarella is a supplier to action-camera maker GoPro ( GPRO ), which was trading up more than 5% Friday. It’s down about 21% this year. “During the fourth quarter we saw strong sales from professional IP security, automotive aftermarket, home monitoring and flying camera markets,” Ambarella CEO Fermi Wang said in the company’s earnings release. “This was largely offset, however, by a continued decline in the wearable sports camera market.” Ambarella is working to diversify its end markets and customer base. For its Q4 ended Jan. 31, Ambarella said revenue rose 5% from the year-earlier quarter to $68 million, and earnings per share fell 5.9% to 64 cents. That beat the view of analysts polled by Thomson Reuters, who on average expected EPS of 48 cents on revenue of $66 million. But Ambarella gave lagging guidance for its fiscal Q1 2017. It sees revenue of $55 million to $57 million and net income of $8 million to $10 million. Analysts polled by Thomson Reuters have been expecting revenue of $62 million, and net income of just over $14 million. Ambarella gets an IBD Composite Rating of 74 and Broadcom a 98 out of a possible 99, factoring in a variety of metrics such as earnings growth and stock-price gains. RELATED: Can IBD 50’s Broadcom Drive Chip Stocks?