Potential Stock Picks Based on PPI Index
Fri, Mar 9, 12:34 PM ET, by Ron Rutherford, Sabrient.com
The recent release of the PPI index, and specifically the core PPI, has sparked some interest into how it relates to stock market returns. Calafia Beach Pundit thinks that the PPI inflation of 3.5% points to higher yields ahead.
From my regression research, the PPI index has the highest correlation with stock market returns by sector versus the CPI indexes of core and headline. Results for back-testing over the last 10 years also resulted in greater returns for the PPI over the CPI; however, core CPI does better than the headline CPI. But for the PPI versus core PPI, the results for the core PPI are very weak and much lower than the S&P 1500 flat weighted. Even when adding core to the headline, PPI results in lower returns than just PPI.
The above regression analysis was in regards to sectors and stocks that performed well when the index was going up, that is, inflation heating up on the consumer side or the producer side, also called “Lovers.” This week’s stock picking is based on a regression back test from July 2000 until the latest release in February 2012 that includes January’s numbers. It performed better than the S&P 1500 flat weighted and achieved nearly 10% annualized return over the back test period.
The following stock picking list is the “Lovers” list and filtered by Sabrient’s Strong Buys and Buys.
- Assurant, Inc. (AIZ), STRONG BUY
- Peabody Energy Corporation (BTU), STRONG BUY
- Nabors Industries Ltd. (NBR), STRONG BUY
- Baker Hughes Incorporated (BHI), BUY
- BB&T Corporation (BBT), BUY
- ConocoPhillips (COP), BUY
- CSX Corporation (CSX), BUY
- Halliburton Company (HAL), BUY
- Helmerich & Payne (HP), BUY
- International Paper Company (IP), BUY
- PerkinElmer (PKI), BUY
- Pioneer Natural Resources Company (PXD), BUY
- SunTrust Banks (STI), BUY
- Zimmer Holdings (ZMH) ,BUY
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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