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number cruncher

What are we looking for?

S&P 500 companies growing at a faster clip than industry peers.

The screen

As news feeds continue to stoke fears of the latest COVID-19 variant of concern, investors should remember that relative to all the major market corrections measured over the past 50 years, the U.S. stock market recovered from the initial pandemic sell-off in March of 2020 in just 120 trading days, one of the quickest recoveries on record. Time will tell how the market will react to the latest variant, but for those who have continued confidence in the U.S. economy, this week’s strategy may offer some ideas. The strategy seeks companies growing at a faster rate than sector peers across a number of metrics, including:

  • Quarterly and annual earnings momentum (recall that quarterly and annual earnings momentum compare the latest four quarters of earnings against the same figures one and four quarters ago, respectively).
  • Quarterly and annual cashflow momentum (similar to the metrics above, but instead looking at the growth in operating cashflow)
  • Trailing return on equity
  • 12-month price change (used as a momentum indicator in today’s strategy; higher figures preferred)

Each of the above metrics was compared with the median of the sector in which a stock belongs. As an example, steel producer NuCor’s sector-relative quarterly earnings momentum of 65.8 per cent implies that the company’s short-term earnings growth is 65.8 per cent higher than the median basic-materials company in the S&P 500 index. Note that only S&P 500 companies were considered in today’s analysis.

What we found

S&P 500 companies growing faster than industry peers

RankCompanySymbolMorningstar SectorMarket Cap (USD, Millions)Sector-Relative Annual Earnings Momentum (%)Sector-Relative Quarterly Earnings Momentum (%)Sector-Relative Annual Cashflow Momentum (%)Sector-Relative Quarterly Cashflow Momentum (%)12M Price Change Relative to Sector Median (%)Sector-Relative ROE (%)Div. Yield (%)Recent Close (USD/Share)12M Ttl Rtn (%)
2Bath & Body Works IncBBWI-NConsumer Cyclical19,862.3416.2-0.2130.810.765.865,369.6*0.875.13130.4
3Nucor CorporationNUE-NBasic Materials30,369.0231.565.8226.736.680.425.11.5106.26100.9
4APA CorporationAPA-QEnergy9,361.6203.8660.219.1-4.143.025,388.6*1.925.77101.0
5Freeport-McMoRan CopperFCX-NBasic Materials54,451.01,014.247.8334.84.541.114.11.637.0859.5
6Mosaic CompanyMOS-NBasic Materials12,675.41,324.258.7144.834.538.4-5.21.334.2257.0
7Gartner Inc CL AIT-NTechnology25,679.
8Advanced Micro DevicesAMD-QTechnology191,249.3114.419.588.110.339.815.90.0158.3770.9
9NVIDIA CorporationNVDA-QTechnology816,900.053.08.456.37.7112.818.70.0326.76143.9
10TJX Companies IncTJX-NConsumer Cyclical83,456.2120.045.9107.543.5-18.522.61.569.410.9

Source: Morningstar CPMS, Data as of November 30, 2021 

*NB: BBWI and APA both show very high ROE figures due to the low or negative book value of equity. These extreme values were accounted for in the ranking process.

I used Morningstar CPMS to back-test the strategy from April, 2004, to October, 2021, assuming an equally weighted 10-stock portfolio with no more than three stocks per sector. Once a month, stocks were sold if they fell below the top 25 per cent of the S&P 500 index, based on the above metrics. When sold, stocks were replaced with the next qualifying stock not already held in the portfolio, considering the aforementioned sector limits. On this basis, the strategy produced an annualized total return of 14.7 per cent, while the S&P 500 total return index produced 10.7 per cent. On a trailing 12-month basis, the strategy produced 68.9 per cent, while the index produced 42.9 per cent.

The stocks that meet requirements to be purchased into the strategy today are listed in the table. This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/04/24 6:40pm EDT.

SymbolName% changeLast
Moderna Inc
Bath & Body Works Inc
Nucor Corp
Apa Corp
Freeport-Mcmoran Inc
Mosaic Company
Gartner Inc
Adv Micro Devices
Nvidia Corp
TJX Companies

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