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Less worries about stock trading

In a sluggish market, there are always some companies that stand out.

On July 23, the CSI 300 Index fell 2.14%, while Yangtze Power rose 0.95%; on May 24, the CSI 300 Index fell 1.11%, while Yangtze Power rose 0.57%. By extending the time axis, it is found that as of July 26, among the 379 trading days since 2023, the CSI 300 Index fell by more than 1% on 42 trading days, and Yangtze Power outperformed the CSI 300 Index 39 times, of which the stock price rose against the trend on 18 trading days.

The outstanding performance of China Yangtze Power is not an isolated case. According to statistics from Securities Times Databao, calculated on a monthly basis, as of July 26, there were 39 companies that outperformed the CSI 300 Index for 10 months or more (10 times or more) since August 2023, including China Yangtze Power.

Specifically, there are only six companies that outperformed the CSI 300 Index 11 times, including two banking companies, one each in the utilities and pharmaceutical and biological sectors, namely Qianyuan Electric Power and Xinhecheng, and the other two are Shuanglin Co., Ltd. in the automotive industry and Hongcheng Environment in the environmental protection industry.There are 33 companies that have outperformed the CSI 300 Index 10 times, mainly distributed in the electronics, power equipment and utilities industries.

Yangtze Power only underperformed the CSI 300 Index in February and March this year, with an average monthly increase of about 3% in the past 12 months; Xinhecheng only underperformed the CSI 300 Index in March this year, with an average monthly increase of about 2% in the past 12 months. Zhengdan Co., Ltd., Shenyu Co., Ltd. and Woer Nuclear Materials, which outperformed the CSI 300 Index more than 10 times, ranked in the top three in terms of average monthly stock price increase during the same period, among which Zhengdan Co., Ltd.'s average monthly stock price increase exceeded 30%, while the CSI 300 Index fell by more than 1% per month during the same period. Overall, the stock prices of these companies are mostly in a state of slow growth, and their short-term performance may not be as good as theme stocks, but in the long run, they are more likely to outperform the market and are typical slow bull stocks.

39 stocks have five significant advantages

The reporter found in previous analyses that the companies that are resistant to declines in the downturn are mainly high-dividend and defensive sectors. Data shows that the average end-of-period dividend rate of the above 39 stocks in the past five years is significantly higher than that of other stocks, and the market capitalization of the stocks is also relatively high.

However, not all high-dividend, large-cap stocks can outperform the market. Do the 39 stocks above have advantages in other areas?

Through a comprehensive analysis of valuation, growth, profitability, liquidity and cost control, it was found that 39 stocks basically crushed the rest of the stocks (selected comparable stocks, those with incomplete data were excluded, and those listed before 2023).

From the perspective of valuation, the latest average price-to-earnings ratio of the 39 stocks is around 30 times, while the remaining stocks exceed 50 times.

From the perspective of growth, as of 2023, the average compound growth rate of net profit in the past three years for the 39 stocks was 8.74%, and the average for the remaining stocks was -33.9%; the average compound growth rate of net profit in the past five years for the 39 stocks was 16.81%, and the average for the remaining stocks was -33.48%.

From the perspective of profitability, from 2019 to 2023, the average weighted return on equity (ROE) of the 39 stocks continued to exceed 10%, while the average weighted ROE of the remaining companies fluctuated greatly and was lower than that of the 39 stocks. In 2023, the average weighted ROE of the 39 stocks was 10.63%, while the average of the remaining companies was -3.17%.

In terms of liquidity, from 2019 to 2023, the average inventory to current assets ratio of the 39 stocks was less than 16%, while the average of the remaining stocks was more than 20%; in 2023, the average inventory to current assets ratio of the 39 stocks was less than 15%, while the remaining stocks were close to 21%. In addition, the cash flow of the 39 stocks is significantly more abundant and less volatile.

From the perspective of cost control, from 2019 to 2023, the average three expenses (sales, management, and finance) rates of the 39 stocks were lower, averaging only around 13% in 2023 and the first quarter of 2024, while the remaining stocks continued to exceed 35%.

It can be seen that 39 stocks have more advantages in terms of dividend yield, valuation, growth, profitability, liquidity and cost control. 39 stocks have lower valuation, better growth, profitability, liquidity and good cost control.

High dividends are not the only criterion for screening potential stocks

Since the end of last year, high-dividend stocks have been in great demand, but recently there have been divergences, and some high-dividend stocks have pulled back. For example, on July 26, the market welcomed its first rebound day this week, high-dividend stocks, mainly China General Nuclear Power and Shenzhen Expressway, fell by more than 2%, while high-dividend stocks such as Changhong Huayi and Vanward Electric rose by more than 6.5%.

It can be seen that high dividends may become a "protective umbrella" in a sluggish market, and may also lead to a slow bull market, but it is by no means the only indicator for screening potential stocks.

According to Databao statistics, the correlation analysis of the average monthly rise and fall in the past 12 months and the average dividend rate and ROE in the past five years shows that the market performance of stocks that outperformed the CSI 300 Index 11 times and 8 times is highly correlated with the dividend rate, among which the market performance of stocks that outperformed the CSI 300 Index 11 times is highly correlated with the compound growth rate of net profit; the market performance of stocks that outperformed the CSI 300 Index 10 times and 9 times is also highly correlated with ROE. At the same time, the correlation between stocks that outperformed the CSI 300 Index less frequently and indicators such as dividend rate is not great.

14 high-dividend blue chip stocks with "slow bull" potential

From the above analysis, we can see that the performance of individual stock prices is not only related to the dividend rate. Individual stocks with high growth and high profitability can not only reduce losses in a bear market, but also outperform the market in a bull market. Which stocks have the characteristics of a "slow bull"?

According to Databao statistics, there are only 14 stocks whose dividend yield will continue to exceed 3% from 2021 to 2023, whose net profit has grown at a compound rate of more than 20% in the past three years ending in 2023, and whose weighted ROE will continue to exceed 15% from 2021 to 2023 (excluding stocks with "expected reduction" in performance in the first half of 2024).

The average dividend yields of the 14 stocks from 2021 to 2023 exceeded 4%, and the average dividend yields of 9 stocks including Yancoal Energy, Huaibei Mining, and Blue Sky Gas exceeded 5%; the weighted ROE averages of Shenhuo Co., Ltd. and Jinkong Coal Industry from 2021 to 2023 exceeded 30%, among which Shenhuo Co., Ltd.'s net profit compound growth rate in the past three years (as of 2023) ranked first among the 14 companies, reaching 154.48%. The compound growth rates of net profits of four stocks including Jinkong Coal Industry and Meihua Biotechnology exceeded 40%.

According to the consensus forecast of institutions, the net profit of 14 stocks is expected to increase in 2024. Six stocks including Shisheng Intelligence and Lingrui Pharmaceutical are predicted by institutions to increase their net profit by more than 10% in 2024.

Judging from the market performance, the above 14 stocks have shown polarized performances this year. Chengdu Bank, Blue Sky Gas, and Power Investment Energy have increased by more than 30%, while Sunflower Pharmaceutical and Huaibei Mining have decreased by more than 9%.

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: Xie Yilan

Proofreading: Ran Yanqing

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