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What are we looking for?

High-quality industrial names whose short-term operational returns continue to improve.

The screen

We screened the industrial sector of the North American stock universe, focusing on the following criteria:

  • A market capitalization greater than $250-million;
  • A 12-month change in economic value-added (EVA) greater than 200 per cent – a positive figure shows us that the company’s profit is increasing at a faster and greater pace than the costs of capital. The EVA is the economic profit generated by the company and is calculated as the net operating profit after tax (NOPAT) minus capital expenses;
  • A 24-month change in EVA greater than 200 per cent;
  • A five-year average return on capital (ROC) of more than 10 per cent. This is a profitability ratio that measures the returns expected for both debt and equity investors. By including such criteria, we are looking for companies with an excellent long-term track record.

For informational purposes, we have also included recent stock price, dividend yield and one-year return.

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More about Inovestor

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts).

What we found

There are 11 industrial stocks that meet our criteria in the North American markets. Topping our list, which is ranked by five-year ROC, is Canadian-listed Westshore Terminals Investment Corp.

Westshore operates a coal storage and loading terminal in British Columbia. Its revenue and operating income are higher than last year on a year-to-date basis. Tonnage shipped was slightly down in the first six months of 2019 compared with the same period a year ago, but the trend appears to have reversed with the recently published third-quarter results. At time of writing, the Vancouver-based company has a dividend yield of 2.7 per cent.

The U.S. company with the highest five-year average ROC is Cleveland-based Transdigm Group Inc. The company is a designer, producer and supplier of engineered aircraft components for use on commercial and military aircraft. Revenue is up year-to-date compared with the same period a year ago. Net income is also trending higher despite some soft results in the most recent quarter. The stock has been a strong performer for several years thanks to growing sales and profit margins.

Investors are advised to do further research before investing in any of the companies shown here.

Select North American industrials

NameTickerMkt. Cap. ($ Mil.)EVA Chg. 12M (%)EVA Chg. 24M (%)ROC (%)Avg. 5Y ROC (%)ROC 12M Chg. (%)Expected Div. Yld. (%)Recent Price ($)1Y Price Chg. (%)
Westshore Terminals InvestmentWTE-T1,500.7263.0238.920.519.43.92.722.50-4.8
Controladora Vuela Co. Avcn ADRVLRS-N998.52,148.51,527.428.415.029.60.011.0076.3
Transdigm Group Inc.TDG-N29,830.0239.1294.422.815.07.40.0559.7859.4
Cummins Inc.CMI-N28,188.8345.4268.818.714.56.92.9184.0026.2
Cabot Microelectronics CorpoCCMP-Q4,059.9326.8295.726.113.115.91.1156.0154.8
Hamburger Hafen Und Logistik ADRHHULY-OTC1,935.4220.7436.117.112.44.22.113.8222.0
Ship Finance InternationalSFL-N1,730.9317.2414.613.512.00.29.714.5015.8
Metso Oyj ADRMXCYY-OTC5,697.5210.9261.213.611.95.12.39.4919.5
Cebu Air Inc. ADRCEBUF-OTC1,087.7702.0345.013.510.47.60.01.8147.0
GCP Applied TechnologiesGCP-N1,629.6706.1435.017.610.216.30.022.42-20.5
Tsugami Corp. ADRTSGMY-OTC497.2223.6522.516.710.13.80.095.834.3

Source: Inovestor

All currency figures shown in USD, except for Westshore, which is CAD.

Christian Godin is a portfolio manager at Inovestor Asset Management.

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