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Weyerhaeuser top the list of U.S. companies that boast solid profit margins compared with other firms in their industry. (Damian Dovarganes/AP)
Weyerhaeuser top the list of U.S. companies that boast solid profit margins compared with other firms in their industry. (Damian Dovarganes/AP)

Number Cruncher

25 U.S. companies with an edge over their peers Add to ...

What are we looking for?

U.S. companies that boast solid profit margins compared with other firms in their industry. These businesses would seem to possess some competitive edge that allows them to extract better returns than their peers from an equal amount of assets. Their shares might therefore be attractive investments.

More Related to this Story

How we did it

Our friend Craig McGee, senior consultant at CPMS Morningstar Canada, did us the favour of scouring the CPMS U.S. database for stocks in the S&P 500 that had gross-profit-to-assets (GPA) ratios greater than their rivals in the same industry.

He further refined his search by requiring each stock to have a positive change in gross profit per share over the past year, and also a positive change in consensus analyst earnings estimates over the past 90 days.

To rank these stocks, Mr. McGee gave equal weighting to industry-relative GPA, gross profit change and consensus estimate revisions. To ensure adequate diversification, he allowed no more than three stocks per sector. The top 25 stocks are shown in the accompanying table.

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

Research by Robert Novy-Marx, an associate professor of finance at the University of Rochester, indicates that GPA may be a better guide to future stock market winners than more common measures of value based on earnings or cash flow. Be aware, though, that past performance is not a good guide to future results. Do your own research before buying any of the shares listed here.

 

U.S. companies with solid margins compared to their industries

Rank Company Symbol Market
Cap
(US$-mil)
Gross
Profit
to Assets
GPA Relative
to Industry
% Chg in
Gross Profit
1 Weyerhaeuser Co. WY-N 16,074 0.12x 1.29x 61.90%
2 LSI Logic Corp. LSI-Q 4,127 0.52x 1.60x 23.88%
3 EOG Resources Inc. EOG-N 39,057 0.38x 2.14x 10.48%
4 Moody's Corp. MCO-N 13,673 0.50x 5.52x 22.99%
5 Sherwin-Williams Co SHW-N 19,279 0.69x 3.72x 12.03%
6 Gap Inc. GPS-N 20,934 0.82x 1.98x 27.58%
7 CBRE Group, Inc. CBG-N 7,932 0.41x 4.54x 10.01%
8 WW Grainger Inc. GWW-N 18,381 0.78x 2.96x 8.85%
9 Coach Inc. COH-N 16,593 1.09x 2.62x 11.19%
10 Dollar Tree Inc. DLTR-Q 12,125 0.94x 2.26x 15.65%
11 Whole Foods Market Inc. WFM-N 20,685 0.86x 2.33x 14.18%
12 Alexion Pharmaceuticals ALXN-Q 19,796 0.41x 1.23x 42.17%
13 Dun & Bradstreet Corp. DNB-N 4,306 0.59x 2.26x 17.54%
14 Western Digital Corp. WDC-Q 15,842 0.33x 1.01x 78.89%
15 Kroger Company KR-N 19,683 0.78x 2.11x 16.37%

Source: Morningstar Canada

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  • WY-N
  • LSI-Q
  • EOG-N
  • MCO-N
  • SHW-N
  • GPS-N
  • CBG-N
  • GWW-N
  • COH-N
  • DLTR-Q
  • WFM-Q
  • ALXN-Q
  • DNB-N
  • WDC-Q
  • KR-N
  • STX-Q
  • XOM-N
  • MON-N
  • LO-N
  • IFF-N
  • MUR-N
  • CERN-Q
  • CELG-Q
  • TEG-N
  • EFX-N
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