S&P Equity Research, whose sister unit downgraded U.S. debt that led to a crash in the stock market Monday, says investors should fall back on tried-and-true measures when buying equities now, given seesawing markets and a weakening economy.
Those gauges ought to include a 10-year record of consistent profit and dividend growth, minimal debt, large amounts of cash, and better cash flow and return on capital than peers, the firm said in announcing its most recent rankings Monday.
S&P’s Ratings Services unit downgraded America’s debt from triple-A to double-AA plus for the first time in history Friday, saying its analysts have little confidence policy makers can put aside their differences and tackle the nation’s mounting debt. That caused a stinging rebuke from President Barack Obama yet pleased Tea Party followers and hard-line Republicans. Legendary investors including billionaire Warren Buffett and bond-fund king Bill Gross weighed in during what has become a national debate.
Meanwhile, the Dow Jones industrial average plunged 635 points Monday following Standard & Poor’s downgrade and jumped 430 points Tuesday after the Federal Reserve pledged to keep interest rates near zero for two years. As a result, investors are now more confused than ever.
An approach to fundamentals may be in order, which is what S&P Equity Research is proposing. The Standard & Poor’s division screens a large number of stocks to find those that match those criteria and publishes its list of S&P Quality Ranking stocks on a regular basis.
Here are 10 stocks that are on S&P Equity’s latest list of the highest-quality companies:
Abbott Laboratories , manufactures pharmaceuticals, medical devices, blood glucose monitoring kits and nutritional health-care products. The company has a market value of $80-billion (U.S.), a 3.1 per cent dividend yield, a cash-to-assets ratio of 13.6 per cent and a projected, one-year earnings per share growth of almost 60 per cent.
Eaton provides power-management services as well as hydraulic components, aerospace fuel systems and truck and auto powertrain systems. It has a market value of $16-billion, carries a 2.1 per cent dividend yield, cash-to-assets of 4 per cent and a projected one-year earnings per share growth rate of 27.7 per cent.
General Electric is a diversified manufacturer and is organized into four segments: technology infrastructure, energy infrastructure, home and business services, and financial services. The conglomerate has a market value of $190-billion, a dividend yield of 2.2 per cent, cash-to-assets of 11.3 per cent and a one-year, projected earnings per share growth rate of 5.4 per cent.
Health Care REIT , a real estate investment trust, owned about $9-billion in real-estate assets at year-end. Its holdings are widely dispersed, with senior housing, medical office, skilled nursing and hospital facilities. The REIT has a market value of $9.3-billion, a dividend yield of 5.2 per cent, cash-to-assets of 20.4 per cent and a projected, one-year earnings per share growth rate of 192 per cent.
Johnson & Johnson is one of the world’s largest and most diverse health-care companies and is made up of three divisions: pharmaceutical, medical devices and diagnostics and consumer products. J&J has a market value of $178-billion, a 3 per cent dividend yield, a cash-to-assets ratio of 24.8 per cent, and a projected, one-year earnings per share growth rate of 11.7 per cent.
McDonald’s is a globe-spanning fast-food restaurant chain, with 32,800 locations in 117 countries. The restaurant chain has a market value of $90-billion, a 2.5 per cent dividend yield, a cash-to-assets ratio of 6 per cent, and a projected, one-year earnings per share growth rate of 6.6 per cent.
Paychex provides payroll-outsourcing services to small and medium-size businesses. It has a market value of $10-billion, a 4.4 per cent dividend yield, cash-to-assets ratio of 8.6 per cent, and a projected, one-year earnings per share growth rate of 6.4 per cent.
Pepsi sells a variety of snacks as well as carbonated and noncarbonated beverages. The company’s broad portfolio of brands includes Pepsi, Gatorade, Tropicana, Lay’s, Doritos and Quaker. It has a market value of $101-billion, a 3 per cent dividend yield, a cash-to-assets ratio of 4.4 per cent and a projected, one-year earnings per share growth rate of 14.4 per cent.
Sempra Energy is one of the most diversified natural-gas companies in the U.S. and its properties, located mainly in Southern California, include unregulated power plants and gas pipelines. The company has a market value of $12-billion, a dividend yield of 3.1 per cent, a cash-to-assets ratio of 5 per cent and a projected, one-year earnings per share growth rate of 13 per cent.
Sonoco Products makes a variety of industrial and consumer-packaging products. It produces paperboard tubes, shaped cans, and beverage and chemical bottles. Sonoco has a market value of $3.2-billion, a dividend yield of 3.4 per cent, a cash-to-assets ratio of 5.5 per cent, and has a projected, one year earnings growth rate of 26.3 per cent.