What are we looking for?
U.S.-listed technology companies that generate high economic profits for the shareholders, positive sales growth and that are trading at interesting multiples.
The screen
We have screened our U.S. technology universe including American depositary receipts (in total, about 645 stocks). We are looking for good economic performance, as well as attractive valuation multiples to identify long-term investment opportunities.
More specifically, our five criteria are as follows:
– a return on capital at or above 10 per cent;
– a return on capital that has grown over 12 months;
– an economic performance index, or EPI (return on capital divided by cost of capital) above 1.0. An EPI ratio of 1.0 or more indicates a company's capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
– positive sales growth over the past 12 months;
– a price-to-earnings ratio below 15.0.
The market cap and dividend yield were added to the table for information purposes.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic value added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 6,500 companies (Canadian and U.S. stocks and ADRs), StockPointer also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only eight companies fit our criteria, and only three of them really stand out: Apple Inc., Taiwan Semiconductor Manufacturing Co. Ltd. and DST Systems Inc.
Apple and Taiwan Semiconductor both offer an outstanding economic performance with a return on capital above 20 per cent, revenue growth well above 10 per cent over the past year and a low price-to-earnings ratio when we consider the S&P 500 trailing P/E average is about 21. DST Systems, a much smaller company, also offers one of the best EPIs of this group, showing good economic performance. While its 12-month sales growth (3.7 per cent) is maybe not as spectacular as we'd like, the very low P/E ratio of 7.73, by far the lowest of the group, could make this stock one of the most attractive for long-term value investors.
Investors should contact a professional or do their own research before investing in any of the stocks shown here.
Jean-Didier Lapointe is a financial analyst for StockPointer at Inovestor Inc.