What are we looking for?
U.S.-listed companies that have strong – and growing – profitability that also appear to be trading at reasonable valuations.
More on the screen
Craig McGee, senior consultant at CPMS Morningstar Canada, helped us out last week on a similar screen for Canadian names. This week, he filtered the CPMS U.S. database for the top 20 stocks using the following criteria:
-a return on capital ratio greater than industry average;
-a positive change over the most recent four quarters in return on capital versus the previous four quarters;
-a ratio at or below the industry average when dividing enterprise value (debt plus common and preferred equity less cash) by earnings before interest, taxes, depreciation and amortization;
-a price-to-earnings ratio less than the historical median of at least the past five years;
-a return on equity ratio greater than the historical median of at least the past five years;
-a market cap greater than $500-million (U.S.).
Stocks were ranked using an equal weighting of industry relative ROC and industry relative EV/EBITDA.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.
What we found
This list was limited to no more than three stocks per industry so that we could expose some profitable and inexpensive stocks across several sectors. Well-known names Transocean Ltd. and Louisiana-Pacific Corp. barely crack the top 20, while Hawthorne, N.Y.-based Taro Pharmaceutical and egg producing giant Cal-Maine Foods Inc. of Jackson, Miss., top our list. Taro, incidently, recently appointed a new chairman as well as a new CEO.
“The results of the strategy helped us unearth wealth-creating companies that may also be attractively valued,” Mr. McGee said. As with last week’s screen, following a well-diversified and disciplined approach like this can be a good way to generate investment ideas focusing on long-term capital appreciation.
As always, use this screen as just a starting place for further research before buying any of stocks listed here.
Profitable U.S. companies trading at reasonable valuations
|1||Taro Pharma Ind. Ltd.||TARO-N||62.58%|
|2||Cal-Maine Foods, Inc.||CALM-Q||27.55%|
|4||Cirrus Logic Inc.||CRUS-Q||20.87%|
|5||Sturm Ruger & Co. Inc.||RGR-N||81.68%|
|8||Cadence Design Systems||CDNS-Q||65.48%|
|10||Endo Health Solutions||ENDP-Q||10.41%|
Source: Morningstar Canada
Historic ROE %
|1||Taro Pharma Ind. Ltd.||TARO-N||62.58%||0.28x||34.05%||0.26x||28.55%||2,819|
|2||Cal-Maine Foods, Inc.||CALM-Q||27.55%||0.38x||17.26%||0.93x||1.88%||1,230|
|4||Cirrus Logic Inc.||CRUS-Q||20.87%||0.35x||9.97%||0.40x||9.68%||1,124|
|5||Sturm Ruger & Co. Inc.||RGR-N||81.68%||0.56x||41.92%||0.33x||73.48%||953|
|8||Cadence Design Systems||CDNS-Q||65.48%||0.67x||36.08%||0.78x||9.34%||4,098|
|10||Endo Health Solutions||ENDP-Q||10.41%||0.22x||0.58%||0.70x||17.52%||4,266|
|12||American Eagle Out. Inc.||AEO-N||19.96%||0.61x||10.64%||0.80x||7.96%||3,699|
|15||Franklin Resources Inc.||BEN-N||8.89%||0.79x||1.49%||0.72x||4.40%||31,037|
|16||GAMCO Investors, Inc.||GBL-N||7.41%||0.88x||4.36%||0.78x||9.17%||1,489|
|17||Minerals Tech Inc.||MTX-N||5.68%||0.84x||1.58%||0.96x||1.75%||1,564|
|18||Exco Resources Inc.||XCO-N||4.65%||0.85x||3.10%||0.79x||31.65%||1,849|
- Taro Pharmaceutical Industries Ltd$140.64+0.90(+0.64%)
- Cal-Maine Foods Inc$52.41+1.65(+3.25%)
- Seagate Technology PLC$20.48-1.29(-5.93%)
- Cirrus Logic Inc$36.32+0.22(+0.61%)
- Sturm Ruger & Co Inc$67.54+3.51(+5.48%)
- Fluor Corp$54.98+0.32(+0.59%)
- Cadence Design Systems Inc$23.54+0.35(+1.51%)
- Insperity Inc$56.68+3.91(+7.41%)
- Endo International PLC$27.18+0.18(+0.67%)
- Lindsay Corp$76.64+0.18(+0.24%)
- American Eagle Outfitters Inc$14.62+0.31(+2.17%)
- Agilent Technologies Inc$41.71+0.79(+1.93%)
- Corrections Corp of America$31.01+0.59(+1.94%)
- Franklin Resources Inc$37.74+0.40(+1.07%)
- GAMCO Investors Inc$40.36+0.79(+2.00%)
- Minerals Technologies Inc$60.29+0.39(+0.65%)
- EXCO Resources Inc$1.43-0.09(-5.92%)
- Transocean Ltd$11.01-0.07(-0.63%)
- Louisiana-Pacific Corp$17.42+0.42(+2.47%)
- Updated May 2 4:00 PM EDT. Delayed by at least 15 minutes.