What we’re looking for
Immensely profitable stocks, by any yardstick. In these uncertain economic times, we’re looking for a security blanket that can only be provided by warm, comforting earnings.
What we found
This stock screen, provided to us by Bloomberg News, picks the most profitable U.S. and Canadian large-cap companies. The model assigns a rank to a company after giving equal weighting to five measures of profitability: return on equity, profit margin, return on assets, EBITDA margin, and return on invested capital.
Profit margin is calculated using the ratio of net income to net sales, while EBITDA refers to earnings before interest, taxes, depreciation and amortization. The return on equity, profit margin, return on assets and return on invested capital data are taken from the latest filings. EBITDA is based on trailing 12-month earnings and sales.
Some of the names on the list are intuitive picks, such as cigarette-maker Philip Morris Inc. and Colgate-Palmolive, which produces soap and toothpaste that consumers will not cut back on, even in a recession. Others, such as Boeing Co., Lockheed Martin Corp. and International Business Machines Corp., are well-entrenched industrial behemoths.
But they rub shoulders with names that many investors are less familiar with, such as Linear Technology Corp., which makes chips, voltage regulators and amplifiers.
Among all the resources-based stocks in Canada, two crack the top 20: Labrador Iron Ore Royalty Corp., which holds stakes in miners, and Silver Standard Resources Inc., which runs mines in South America, Canada and Australia.
Consumer discretionary goods also make an appearance. Luxury-goods maker Coach Inc. ranks high, as does Limited Brands, the owner of franchises such as Victoria’s Secret, La Senza and Bath & Body Works. They are both topped by Hershey Co., one of the unofficial sponsors of Halloween and Valentine’s Day.