Fundamentals play a vital role in determining which stocks make for good long-term bets. However, a company’s management team also influences whether investors want to get on board. A big factor that makes for trustworthy stocks is transparency — and while it’s impossible to predict with certainty what’s to come, a company’s earnings call often provides insight into the direction management is heading.
Therefore, who can you trust? Amenity Analytics has developed a “deception scorecard” that uses natural language processing (NLP) to turn the text from earnings calls into data. That data flags deceptive language from the transcript to give investors an idea of how forthcoming management was about a range of topics in their quarterly results.
Above all, deceptive language on its own doesn’t necessarily mean management is withholding something. A big part of Amenity’s analysis is comparing deception scores from quarter to quarter. In fact, that establishes a baseline and allows investors see whether rhetoric on the call was more or less deceptive than usual.
According to Amenity’s analysts of third quarter results, Duke Energy (NYSE:DUK), Citigroup (NYSE:C), The Blackstone Group (NYSE:BX), PepsiCo (NASDAQ:PEP) and United Parcel Services (NYSE:UPS) not only had the lowest total deception of large-cap U.S. companies, but their deception score actually decreased from previous quarters as well.
That being said, here’s a look at the five most trustworthy stocks according to their deception scores.
Trustworthy Large-Cap Stocks: Duke Energy (DUK)
DUK had the lowest total deception with a “total deception” score of just 3. The firm is a favorite among dividend investors, with a yield of 4.2%. As one of the nation’s top utility companies, DUK represents a safe play for those worried about an impending recession. Their operations are largely regulated, and therefore, the firm has a relatively stable revenue stream.
Currently, the firm is spending to construct the Atlantic Coast Pipeline — a natural gas pipeline between West Virginia and North Carolina. However, DUK management stalled operations of the project until 2022 and announced a $2.5 billion stock offering to raise money to cover the costs.
Management has promised that DUK’s credit rating will remain a top priority as the project moves forward. That being said, trust is an important factor when deciding whether or not to buy DUK stock.
Citigroup’s total deception score came in at 5 with just two phrases flagged for negative deception in the firm’s Q3 earnings call. Over the past year, Citi’s deception events have decreased considerably, with 18 flagged phrases in the firm’s Q4 2018 call.
That makes sense when you consider Citigroup’s position as well. The firm has been involved in a major restructuring that has left a more streamlined, efficient C stock. The firm, though still at the bottom of the totem pole when it comes to performance among the big four bank stocks, looks to have a bright future ahead.
Also, according to analysts at UBS, Citigroup was named as one of 23 stocks that should offer investors growth through dividends as the economy slows. Furthermore, C stock’s estimated annualized dividend growth rate is a whopping 20.1%.
The firm’s current dividend yield is a respectable 2.7%.
Blackstone Group (BX)
The three final stocks on this list had total deception scores of 6. But, BX stock ranks highest because its score change of -38.7 suggests the amount of rhetorical deception has been decreasing. The firm’s Q3 call had just two statements flagged for deception, a decrease from last quarter’s five.
Analysts at Credit Suisse gave BX an “outperform” rating following the firm’s Q3 results, saying, “With global economic activity decelerating and valuations generally high, BX has still been able to find new investment opportunities and has a large pipeline of transactions that are set to close over the next two quarters.”
Of course, with a potential market downturn on the cards for 2020, BX is at risk of headwinds. However the firm’s 3.6% dividend yield makes waiting through some turbulence a bit easier.
PEP stock’s total deception also came in at 6 with just two statements flagged for negative deception in the firm’s Q3 earnings transcript. PepsiCo has been hurt by a shift in consumer preferences as people search for healthier, more-natural options.
To combat that, PepsiCo recently announced plans to acquire BFY Brands — which makes a variety of healthy snack options like protein and veggie crisps. The deal, if approved by regulators, would improve PEP’s healthy snack portfolio and likely drive growth in the future. JP Morgan’s Andrea Teixeira commended the deal, saying the healthy snack segment is a fast-growing sector.
PEP stock is still facing some headwinds, though. Credit Suisse gave the stock an “underperform” rating, saying, “PepsiCo’s top-line growth has come entirely from pricing, with volumes flat in the past four quarters. Core soft drinks brands are declining, which we believe will require higher spending in 2020.”
United Postal Service (UPS)
UPS also had a total deception score of 6, with just two negative deception events in its Q3 earnings call. The shipping business has grown exponentially as e-commerce is rising. However, that growth has also introduced new competitors like Amazon (NASDAQ:AMZN) into the ring.
Morningstar analysts say that UPS has growth opportunities in developing nations, as well as the healthcare market. The firm also notes that while Amazon represents a risk, it doesn’t expect Amazon’s competitors to start using AMZN logistics networks; Thus, preserving UPS’ market.
However, there are still risks to UPS’ business. The retirement of the firm’s COO Jim Barber has caused many to question where the firm will go once CEO Jim Abney steps down, as most expected Barber to fill his shoes come retirement.
As of this writing, Laura Hoy was long AMZN and DUK.