What are we looking for?
Global firms with high growth and profitability.
The screen
Recent selloffs around the world have been broadly based, taking down the good and the bad without much discrimination. Any signs of weakness or even caution have been interpreted negatively and many investors have been moving away from risky equities. Investors favouring high-quality companies with stable profitability, increasing expectations and growing earnings may be rewarded when markets move forward again.
To search for some potential ideas, my colleague Lawrence Ullman and I used Bloomberg to list the top 20 stocks from around the world with market cap above $1-billion (U.S.) and the best mix of:
- forward return on equity (ROE);
- five-year compound annual growth rate of earnings;
- three-month consensus earnings estimate revision;
- EBITDA/EV yield (earnings before interest, taxes, depreciation and amortization as a percentage of enterprise value);
- FCF yield (free cash flow per share as a percentage of the latest price);
- one-year total return.
Additionally, we also limited results to companies with: ROE greater than their five-year average ROE; positive one- and five-year EPS growth rates; three-month estimate revisions no worse than minus 15 per cent; and price changes over the past one- and three-month periods no worse than minus 10 per cent.
More about the Ullman Group
The Ullman Group is an independent provider of strategic private capital management services to high-net-worth individuals, corporations, endowments, charities and foundations.
What we found
We used Bloomberg to perform a back-test starting July 31, 2000, reselecting an equally weighted portfolio of the top 20 qualifying stocks every three months.
Over the 15-year period, this strategy would have generated an annualized total return of 12 per cent (in U.S. dollars) compared with 4.5 per cent for the MSCI World index.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. Investors should contact a professional or do their own research before investing in any of the stocks shown here.
Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.
Craig McGee, CFA, is a portfolio manager and Lawrence Ullman, MBA, is a director, wealth management and portfolio manager with the Ullman Group at Richardson GMP in Toronto.