Peter Ashton is vice-president of client services at Recognia Inc.
What are we looking for?
The U.S. stock markets have significantly outperformed their Canadian counterparts since the current bull market began in 2009. But with markets near all-time highs, are there still quality stocks to be found at a reasonable price?
We will be using Recognia Strategy Builder to identify the best companies in the U.S. market using traditional value investing criteria.
We begin by setting a minimum market capitalization threshold of $5-billion (U.S.). We wish to focus on large cap names in the market due to the greater stability and safety that they offer. Approximately 10 per cent of U.S. stocks have a market cap in excess of this threshold.
Second, we will employ four value investing criteria to identify stocks that would be of interest to bargain hunting investors. Specifically, we will look for companies with price-to-earnings ratios (P/E) of less than 15, a five-year historical earnings-per-share growth rate of 5 per cent (annualized) or more, debt to equity of 1.5 or less, and a five-year historical dividend growth of more than 10 per cent (also annualized).
Finally, to look for stocks with growing investor interest, we will employ a trading criterion: 10-day versus 90-day average volume. We wish to find companies for which the ratio of the 10-day average volume to the 90-day average volume is 1.1 or more.
More about Recognia
Recognia is a global leader in actionable technical and quantitative analysis. Accessible by more than 20 million traders and investors globally, Recognia cover 85 exchanges worldwide, and analyzes 65,000 instruments daily including stocks, indexes, ETFs, currencies and futures.
What did we find?
Once considered a high beta growth stock, Apple Inc. today pays a healthy dividend, has low debt and matches the classic definition of a value stock. It has the highest market cap in our screen at $510-billion and the highest dividend growth rate at 330 per cent.
Luxury goods maker Coach Inc. also matches our screen and has the highest 10-day to 90-day average volume ratio on our list. Coach also has a low debt to equity ratio and a very reasonable P/E ratio of 12.9.
Financial services companies are strongly represented in our screen results. Capital One Financial has the highest EPS growth rate of the companies listed at 182 per cent over the past five years.
Twenty-First Century Fox Inc. is a multinational media company. It has an 83 per cent historical EPS growth rate as well as a 12 per cent historical dividend growth rate.
Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked over a five-year historical period. Using a three month buy-and-hold strategy, the screen described had a 19.7 per cent annualized return compared to 15.1 per cent for the S&P 500 and 14 per cent for the Dow Jones industrial average.
Investors should conduct further research before investing.
U.S. large cap value stocks
- Coach Inc$40.27-0.94(-2.28%)
- Apple Inc$93.74-1.09(-1.15%)
- Capital One Financial Corp$72.39-0.98(-1.34%)
- Fifth Third Bancorp$18.31-0.18(-0.97%)
- Aetna Inc$112.27-2.36(-2.06%)
- Ensco PLC$11.96+0.33(+2.84%)
- Travelers Companies Inc$109.90+0.77(+0.71%)
- Twenty-First Century Fox Inc$30.12-0.45(-1.47%)
- Seagate Technology PLC$21.77-5.13(-19.07%)
- Microsoft Corp$49.87-0.03(-0.06%)
- Raytheon Co$126.35-1.16(-0.91%)
- Updated April 29 4:00 PM EDT. Delayed by at least 15 minutes.