What are we looking for?
Consistent growth stocks outside the S&P 500
More about today's screen
This is a continuation of a theme we've done in the last couple of weeks looking for stocks that have consistent sales growth. For stocks within the S&P/TSX composite (tgam.ca/CfT3) and the S&P 500 (tgam.ca/CgfK), we found that stocks that grew revenues every year tended to outperform the market significantly. We learned that consistent growth over the long term is more important than strong short-term growth.
With the help of Morningstar CPMS, today we'll look at whether the same holds true for stocks outside the S&P 500.
More about CPMS
CPMS is an equity research and portfolio analysis firm owned by Morningstar Canada. It maintains a database of about 680 of the largest and more liquid Canadian stocks, plus more than 2,100 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
Sometimes investors can find better returns outside the large indexes if they know where to look. CPMS senior consultant Craig McGee ran a filter on the full universe of U.S. stocks his firm follows and found just seven names that are not members of the S&P 500 and that have grown sales every year for the past 15 years. Five of the seven have beaten the S&P 500's annualized price return (not including dividends) of 5 per cent over that time.
Last week we found 24 stocks within the S&P 500 with 15 years of consistent sales growth. They had a median price return of 12.4 per cent and all of them had an annualized price return that had outperformed the S&P 500, so looking outside the S&P 500 for consistent growth didn't enhance returns a great deal.
It's not likely that any of these names in the table today are familiar to many Canadian investors, but this may be a good starting point to do some more research on emerging names.