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Profitable companies with momentum on their side Add to ...

Companies are sorted based on the percentage change in estimates of EPS growth from 2014 to 2015

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients. mike@mikebowmangroup.com

What are we looking for?

Companies with accelerating earnings per share growth rates.

The screen

My colleague Rob Belanger and I looked at North American companies with a market capitalization of more than $1-billion, and that paid a dividend yielding at least 2 per cent.

Earnings per share (EPS) is generally considered to be the single most important variable in determining a company’s share price since it is an indicator of a company’s profitability. It is defined as the net income minus any dividends paid out on preferred shares, divided by the average number of outstanding shares. Based on analysts’ consensus estimates, all the companies had to have positive EPS forecasts for 2015; these also had to be more than 10 per cent higher than the EPS estimates for 2014. We have sorted the companies based on their EPS growth percentage change from 2014 to 2015.

Return on equity (ROE) measures a corporation’s profitability by revealing how much profit a company generates with the money that shareholders have invested. All companies had to have an ROE greater than 15 per cent.

Enterprise value to free cash flow (EV/FCF) compares the total valuation of a company with its ability to generate cash flow. The lower the ratio the faster a company can generate cash to reinvest in its business and all our companies had to have an EV/FCF less than 25.

Enterprise value divided by earnings before interest, taxes, depreciation and amortization (EV/EBITDA) is one of the most commonly used valuation metrics. We are looking for a low number.

What did we find?

H&R REIT, which owns office, industrial and retail properties, principally in the Greater Toronto Area. The company has the highest projected EPS growth, and also has the highest yield. The telecom sector is well represented with BCE, Shaw, Rogers and AT&T, as are the beverage makers, with Coca-Cola, Pepsico and Dr. Pepper Snapple. Based in Kansas City, Garmin Ltd. is a leading navigational company specializing in GPS, and it has the lowest EV/FCF on our screen.

Investors should consult an investment professional or conduct further research before investing in any of the securities listed here.

Companies with accelerating EPS growth rates

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