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Friday, November 22, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including GE Aerospace (GE), Fomento Economico Mexicano (FMX) and Waste Management, Inc. (WM), as well as a micro-cap stock, Aware, Inc. (AWRE). These research reports have been hand-picked from roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

GE Aerospace’s shares have underperformed the Zacks Transportation - Airline industry over the last six months (+8.1% vs. +16.1%). The Zacks analyst believes that the company has been dealing with high costs and expenses related to certain projects and restructuring activities, which are likely to affect its margins and profitability. Supply-chain disruptions in the defense market continue to take a toll on its operations. Also, foreign exchange headwinds are a cause for concern.

However, global defense budgets, geopolitical tensions, positive airline & airframer dynamics and robust demand for commercial air travel augur well for the company. Also, it has been witnessing strength in its businesses, driven by robust demand for commercial engines, propulsion and additive technologies.

(You can read the full research report on GE Aerospace here >>>)

Fomento Economico’s shares have underperformed the Zacks Beverages – Soft drinks industry over the past year (-30.4% vs. +2.4%). The Zacks analyst believes that the company’s Health division is dealing with complex, competitive, and regulatory issues in several markets, particularly in Mexico, leading to disappointing returns.

Yet, the company is making massive inroads with its forward strategy that aims for long-term value creation across businesses. Recent expansions via acquisitions in the American market should also help.

(You can read the full research report on Fomento Economico here >>>)

Shares of Waste Management have outperformed the Zacks Waste Removal Services industry over the past two years (+35.0% vs. +33.3%). Per the Zacks analyst, the company’s core operating initiatives of focused differentiation, continuous improvement, and instilling price and cost discipline have aided. Successful cost-reduction initiatives have also helped it achieve better margins.

However, operating in a highly competitive and consolidated waste industry weighs on the company's top line. National, regional, and local companies give tough competition.

(You can read the full research report on Waste Management here >>>)

Shares of Aware have outperformed the Zacks Internet – Software and Services industry over the past year (-7.9% vs. -9.9%). Per the Zacks analyst, rise in the company’s recurring revenue reflects a shift toward a subscription model and underscores its market expansion and improved financial predictability.

Yet, declining cash reserves, continued net losses, reliance on government contracts and limited market diversification pose significant risks. Also, increasing competition and execution risks in strategic initiatives remain headwinds.

(You can read the full research report on Aware here >>>)

Other noteworthy reports we are featuring today include U.S. Bancorp (USB), Constellation Energy Corp. (CEG) and American Electric Power Co., Inc. (AEP).

Mark Vickery

Senior Editor

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Today's Must Read

Focused Differentiation Aids Waste Management (WM), Cost High

FEMSA's (FMX) Digital Initiatives to Bolster Performance

Commercial Engines Unit to Aid GE Aerospace (GE), Costs Ail

Featured Reports

Jakafi Sales Drives Incyte (INCY) Amid Pipeline Setbacks

Per the Zacks analyst, Incyte's lead drug, Jakafi, maintains momentum on strong underlying demand amid competition. However, the recent pipeline setbacks dent its efforts to expand its portfolio.

Focus on Renewable Energy Aid Constellation Energy (CEG)

Per the Zacks analyst, Constellation Energy gains from expansion of renewable portfolio. Its position as an industry leader in the safe operation of nuclear plants helps it increase its nuclear output

Capex Aids American Electric (AEP) Amid High Interest Costs

Per the Zacks analyst, solid capital expenditure in transmission and distribution should benefit American Electric. Yet, increasing interest expenses might hurt its bottom-line performance

WIX Gains From Strong Revenue Growth & Bookings Momentum

Per the Zacks analyst, Wix's performance is gaining from healthy top-line expansion driven by strength across all its business units. Steady growth in bookings bode well.

Loan Growth Supports U.S. Bancorp (USB), Higher Costs a Woe

The Zacks Analyst believes strengthening loan pipelines in the commercial and credit card space to drive U.S. Bancorp's loan growth in the upcoming period. Yet, mounting expenses remain a headwind.

Ecolab (ECL) Benefits from Volume Gains and Cost Efficiency

Per the Zacks analyst, Ecolab has been benefiting from increase in its sales volumes, driving pricing, and improving its underlying productivity by leveraging its digital capabilities.

Expansion Efforts to Aid Restaurant Brands (QSR), Costs High

Per the Zacks analyst, Restaurant Brands is likely to benefit from unit expansion, menu innovation and Reclaim the Flame initiative. However, high costs and a soft consumer environment is a concern.

New Upgrades

Growth Projects, Kirkland Buyout Aid Agnico Eagle (AEM)

Per the Zacks analyst, the company will benefit from investment in growth projects to expand output. The Kirkland Gold acqusition has also provided an extensive pipeline of exploration projects.n

Expanding Paying User Base Aids Dropbox's (DBX) Prospects

Per the Zacks analyst, Dropbox is benefiting from an expanding user base and strong average revenue per paying user growth.

Strong Execution Services Unit Aids Virtu Financial (VIRT)

The Zacks Analyst believes that product developments and new deals in Execution Services will continue to drive Virtu Financial's revenues. Also, debt reduction will boost its financial flexibility.

New Downgrades

SLB to Hurt From Reduced Customer Spending in North America

SLB's North American land operations face challenges due to reduced drilling activity caused by cautious customer spending. Additionally, its significant exposure to debt concerns the Zacks analyst.

Escalating Expenses and Competition Hurt Avis Budget (CAR)

Per the Zacks analyst, increasing expenses due to fleet cost is a major headwind to Avis Budget's bottom-line. Rising competition from other players is an overhang.

Weak Demand Hurts Microchip's (MCHP) Top-Line Prospects

Per the Zacks analyst, Microchip is suffering weakening demand and challenging macroeconomic environment. Persistent inflation and high-interest rates hurt prospects.

Zacks Investment Research

Designed to provide broad exposure to the Large Cap Value segment of the US equity market, the Franklin U.S. Low Volatility High Dividend Index ETF (LVHD) is a passively managed exchange traded fund launched on 12/28/2015.

The fund is sponsored by Franklin Templeton Investments. It has amassed assets over $567.84 million, making it one of the average sized ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Large cap companies usually have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.27%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 3.67%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Utilities sector--about 24.80% of the portfolio. Consumer Staples and Real Estate round out the top three.

Looking at individual holdings, Cisco Systems Inc (CSCO) accounts for about 2.85% of total assets, followed by Mcdonald's Corp (MCD) and Us Bancorp (USB).

The top 10 holdings account for about 25.6% of total assets under management.

Performance and Risk

LVHD seeks to match the performance of the QS Low Volatility High Dividend Index before fees and expenses. The QS Low Volatility High Dividend Index provides stable income through investment in stocks of profitable U.S. companies with relatively high dividend yields, lower price and earnings volatility.

The ETF has added roughly 15.24% so far this year and is up about 22.49% in the last one year (as of 11/22/2024). In the past 52-week period, it has traded between $34.51 and $41.26.

The ETF has a beta of 0.78 and standard deviation of 13.72% for the trailing three-year period. With about 118 holdings, it effectively diversifies company-specific risk.

Alternatives

Franklin U.S. Low Volatility High Dividend Index ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, LVHD is an outstanding option for investors seeking exposure to the Style Box - Large Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.

The Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV) track a similar index. While Schwab U.S. Dividend Equity ETF has $66.20 billion in assets, Vanguard Value ETF has $132.22 billion. SCHD has an expense ratio of 0.06% and VTV charges 0.04%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research