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What are we looking for?
Large-cap North American companies that have positive cash flow, with strong debt-to-equity and profitability ratios.
North American equities have continued to perform strong throughout the summer. As the Dow Jones Industrial Average flirts with 22,000, investors continue to wonder whether the party will soon come to an end. To protect their portfolios from a possible pullback in the market, investors may gravitate toward those companies that can weather the storm.
For today's screen, we look at companies that have positive cash flow for the past three years, a strong debt-to-equity (D/E) ratio and consistent profitability.
We first screened for North American large-cap firms, with market capitalizations over $1-billion (U.S.). We then filtered companies that have a D/E ratio of less than 70 per cent. Our companies then had to have positive free cash flow for the past three years (a measure of financial performance), and a net profit margin ratio of at least 20 per cent, also over the past three years.
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What did we find?
Our screen left us with 15 securities, with no Canadian-listed stocks surfacing in the survey. Topping the list, which is ranked by market capitalization, is Apple Inc., which is up 28.6 per cent year to date and produces a dividend yield of 1.7 per cent. The company continues to provide strong net profit margins year after year while keeping its D/E ratio under control. Under chief executive officer Tim Cook's direction, the company has continued to lead innovation in the technology industry.
Another notable name in the screen is Visa Inc., which has had a net profit margin over 42 per cent every year for the past three years. The company has a low D/E ratio of 48.3 per cent and produces a dividend yield of 0.7 per cent. MasterCard, Visa's main rival, did not make the list as it had a D/E ratio of 91 per cent.
Investors are encouraged to do their own research before investing in any stocks listed.
Paul Hoyda, CFA, is a market specialist in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.
Select North American large-cap stocks
|Company||Symbol||Market Cap. (US$ Mil.)||Debt/Equity||FCF 3Y Avg (US$ Mil.)||Net Profit Margin FY 2016||Net Profit Margin FY 2015||Net Profit Margin FY 2014||Recent Price Close (US$)||Dividend Yield||P/E||Revenue (US$ Bil.)|
|Analog Devices Inc.||ADI-Q||28,997.6||33.5%||286.4||20.3%||22.0%||25.6%||79.01||2.3%||30.3||4.1|
|SunTrust Banks Inc.||STI-N||27,698.4||69.9%||1,676.1||35.4%||32.0%||24.1%||57.29||1.8%||15.2||8.9|
|Franklin Resources Inc.||BEN-N||24,973.9||17.5%||1,543.3||25.5%||27.9%||26.8%||44.78||1.8%||14.6||6.4|
|TD Ameritrade Holding Corp.||AMTD-Q||24,152.3||36.0%||534.5||25.0%||25.2%||24.4%||45.73||1.6%||28.6||3.5|
|Regions Financial Corp.||RF-N||17,550.1||21.1%||913.3||28.1%||30.1%||29.4%||14.60||2.5%||15.5||5.6|
|First Republic Bank||FRC-N||15,778.6||13.2%||305.4||27.8%||29.1%||31.1%||100.33||0.7%||24.5||2.6|
Source: Thomson Reuters Eikon