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NUMBER CRUNCHER

Top 20 stocks in U.S. portfolio focused on growth Add to ...

Craig McGee of CPMS Morningstar Canada uses a strategy that looks for U.S. businesses expanding at a rapid clip

What are we looking for?

The S&P 500 has had a spectacular year and some of the best performers have been companies, such as Twitter or Facebook, that have excited investors with their potential for growth.

On the chance that the market’s appetite for growth stories will continue, we thought it would be interesting to look for other U.S. businesses that seem to be expanding at a rapid clip.

How we did it

Craig McGee, senior consultant at CPMS Morningstar Canada, took us on a tour of the CPMS U.S. Asset Growth strategy. It looks for stocks with high reinvestment rates (return on equity minus dividends) and upward revisions in analysts’ outlooks.

The strategy places secondary importance on recent increases in the share price, positive earnings surprises and strong upward momentum in quarterly earnings.

The growth model tracks the performance of a 40-stock portfolio. The top 20 are shown in the accompanying list.

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its 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

The CPMS asset growth model has produced a total return – stock gains plus dividends – of 50.8 per cent so far this year. By comparison, the S&P 500 Total Return Index has gained only 29 per cent. Since inception, the model has generated an annualized return of 13.9 per cent versus 9.1 per cent for the index.

Remember, though, that growth isn’t always in fashion. Do your own research before buying any of the companies listed here.

CPMS U.S. Asset Growth model

Follow on Twitter: @IanMcGugan