What are we looking for?
Consumer discretionary is the sector often expected to win from falling gasoline prices as consumers should have more money to spend on non-essential items. According to economists at Barclays, a 20-per-cent decline in oil prices results in $70-billion (U.S.) in consumer savings. Today my colleague Rob Belanger and I are looking at the S&P 500 consumer discretionary index.
The screen
We started with companies greater than $1-billion (U.S.) in market capitalization and ranked them from the largest to the smallest.
EV/EBITDA (enterprise value divided by the earnings before interest, taxes, depreciation and amortization) is a value ratio that looks at a firm the way a potential acquirer would, and a low number is preferred.
The price to cash flow ratio (P/CF) represents the amount an investor is willing to pay for a dollar generated from a company's operations. A low number is preferred.
Earnings per share growth is the percentage growth in EPS over the past 12 months, which serves as an indicator of a company's profitability. We only included companies with EPS growth of greater than 10 per cent.
The PEG ratio is the P/E divided by the growth rate of the company's earnings. The lower the PEG, the more the stock may be undervalued given the earnings performance, and all our companies have a PEG less than 2.5.
Return on equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Companies had to have an ROE greater than 15 per cent.
We have included only companies where the consensus of analysts' recommendations was three or up. (Three is a hold, four is a buy and five is a strong buy; two is a sell, one is a strong sell).
All our companies had to have a total return greater than 20 per cent in the past 12 months.
What did we find?
Macy's Inc. operates Macy's and Bloomingdales stores in 45 states, and the company scored the best in the EV/EBITDA category. Expedia Inc., one of the world's largest online travel companies, came in ahead of the pack in price to cash flow, and appliance manufacturer Whirlpool Corp. spun out the best (lowest) PEG ratio. PR firm Interpublic Group of Cos. Inc. has the highest one year EPS growth, while Home Depot Inc. ranks best in ROE.
Investors should contact an investment professional or conduct further research before investing in any of the companies listed here.
Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.