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(Photos.com)

NUMBER CRUNCHER

In search of cheap, safe U.S. stocks Add to ...

What are we looking for?

U.S. companies that appear to be attractively priced and that also offer a margin of safety.

The Screen

At Wickham Investment Counsel, we have developed our own Canadian Safety and Value strategy. This week, my colleague Allan Meyer and I thought we would apply the same criteria to U.S. companies. We screened stocks on a variety of safety and value metrics and arrived at a 30-company U.S. portfolio. The accompanying table shows the largest 25 of these businesses by market capitalization. Some of the metrics we used to arrive at the list:

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  • Free cash flow to enterprise value shows how much free cash a company produces in relation to the total market value of its equity and net debt. A higher number is better.
  • P/E ratio is the earnings-per-share estimate for the next 12 months divided by the current share price. A low number is favoured.
  • EBITDA (earnings before interest, taxes, depreciation, and amortization) to total interest expense shows how many times EBITDA covers the interest costs. A high number is better.
  • Debt-to-equity ratio indicates what portion of equity and debt the company is using to finance its assets. A high debt-to-equity ratio generally means that the company has been aggressive in financing its growth with debt. A low number is preferred.
  • Price-to-book (P/B) compares a company’s market value to its book value, where book value is the net asset value of the company. A low number is best.

What did we find?

While a back test is no indication of future results, the U.S. Safety and Value Strategy returned over 570 per cent during the past 10 years, beating the S&P 500, which rose only 103.6 per cent. While the hypothetical return was impressive, commission costs are not included, and the turnover ratio was quite high.

 

U.S. Safety and Value Strategy Screen

Company Ticker Market
Cap
($-mil)
Recent
Price $
Free
Cash
Flow to
Enterprise
Value (EV)
Microsoft Corp. MSFT-Q 297,883 37.05 11.6
Berkshire Hathaway -B BRK.B-N 288,570 121.63 8.9
Cisco Systems CSCO-Q 138,632 26.94 10.6
WellPoint Inc. WLP-N 25,650 88.69 12.1
Valero Energy VLO-N 19,556 37.24 9
Lorillard Inc. LO-N 17,440 47.95 6.6
Western Digital WDC-Q 16,040 70.48 17.6
CA Inc. CA-Q 13,551 31.07 11.5
Foot Locker Inc. FL-N 5,585 38.48 7.9
First Solar Inc. FSLR-Q 4,710 49.49 12.2
IAC/InterActiveCorp. IACI-Q 4,511 53 7.1
Alliant Techsystems ATK-N 2,845 91.78 10
Cooper Tire & Rubber CTB-N 2,128 34.91 6.6
Men's Wearhouse MW-N 1,995 41.2 6.3
Benchmark Electronics BHE-N 1,137 21.74 24.9

All currencies in US$. Source: Wickham Investment Counsel Inc., Bloomberg

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  • MSFT-Q
  • BRK.B-N
  • CSCO-Q
  • WLP-N
  • VLO-N
  • LO-N
  • WDC-Q
  • CA-Q
  • FL-N
  • FSLR-Q
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Live Discussion of VLO on StockTwits
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Live Discussion of LO on StockTwits
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Live Discussion of WDC on StockTwits
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Live Discussion of CA on StockTwits
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Live Discussion of FL on StockTwits
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Live Discussion of FSLR on StockTwits
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