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What are we looking for?

We are looking for U.S. consumer staples companies generating high economic profits for shareholders and positive free cash-flows.

The screen

With markets at record highs, today we focus on a sector tied to non-discretionary consumer spending, which has historically shown defensive qualities such as low volatility and independence toward economic cycles.

We screened our U.S. consumer staples universe of stocks, representing roughly 350 companies, with the following criteria:

  • A market capitalization of $5-billion (U.S.) or above;
  • An economic performance index, or EPI (return on capital divided by cost of capital) greater than 1.5. An EPI ratio of one or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
  • A return on capital greater than 15 per cent;
  • A positive sales change over 12 months and 24 months;
  • A free-cash-flow-to-capital ratio of 5 per cent or greater. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A positive figure is good, 5 per cent and above is excellent.

The dividend yield is displayed for informational 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 7,500 companies (Canadian stocks, U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.

What did we find?

Only seven companies out of 353 made the cut using our set of criteria. Monster Beverage Corp. stands out thanks to double-digit sales growth on both the 12- and 24-month horizons. Monster's 10-per-cent sales growth over 12 months and 25-per-cent sales growth over 24 months are the best of the group. The company also generates the highest free cash-flow-to-invested-capital ratio, at 20 per cent. Given its optimistic growth plans mainly oriented toward its international expansion, Monster does not distribute dividends to shareholders – the cash is used to fuel growth, and that strategy has paid off well. The stock has gained about 265 per cent over the past five years.

Investors are advised to do additional research prior to investing in any of the companies mentioned.

Jean-Didier Lapointe is a financial analyst at Inovestor Inc.

The table:

Select U.S. consumer staples 

CompanyTickerMarket Cap. ($Mil U.S.)EPIR/C12M Sales Change24M Sales ChangeFCF/CapitalDividend Yield
Hershey Co.HSY-N22,3203.321.8%2%1%7%2.48%
Clorox Co.CLX-N16,5203.321.5%4%6%8%2.62%
McCormick & Co.MKC-N12,7002.415.6%4%7%6%1.93%
Blue Buffalo Pet Products Inc.BUFF-Q5,3702.230.8%8%21%8%0.00%
Church & Dwight Co. Inc.CHD-N10,9802.215.6%5%7%11%1.73%
Monster Beverage Corp.MNST-Q32,7702.120.5%10%25%20%0.00%
Estée Lauder Co.EL-N44,8202.015.9%8%11%9%1.26%

Source: StockPointer