Skip to main content

What are we looking for?

Lesser-known U.S. names showing long-term stability and quality.

The screen

For Canadian domiciled equity investors, investing in U.S. equities can often lead to a large-cap bias. Naturally, investors may often gravitate toward companies that have a recognizable brand that affects their daily lives. This being said, it is important to highlight just how large the U.S. equity market is, and the opportunities for growth in your investment portfolio.

Case in point, the median market cap stock in the U.S. market currently sits at US$3.2-billion (or roughly $4.2-billion Canadian). By contrast, the median stock in Canada has a market cap of $440-million, or a little more than one-tenth the comparable U.S. figure.

Story continues below advertisement

It can prove fruitful to look past the more familiar names listed in the S&P 500, an index focused on large cap stocks. Today, I use Morningstar CPMS to rank all the stocks in our U.S. database on the following metrics:

  • 10-year dividend growth rate (on average, how much dividends have grown each year in the past 10 years);
  • 10-year average return on equity;
  • Deviation of earnings over the past 10 years and deviation of total returns over the past five years (these statistical measures outline the stability of a company’s reported earnings and stock price, respectively, lower values preferred);
  • Variation of earnings per share estimates (measuring the consistency of analyst opinion, lower values preferred).

To qualify, companies must not be part of the S&P 500 index and must have a market capitalization greater than US$1.1-billion (this figure is meant to exclude the bottom one-third of U.S.-listed companies by market cap).

More about Morningstar

Morningstar Research Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market. With more than 120 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.

What we found

I used Morningstar CPMS to back test this strategy from February, 2006, to August, 2019. During this process, a maximum of 15 stocks were purchased and equally weighted with no more than three for every economic sector. Once a month, stocks were sold if their rank fell below the top 35 per cent of the universe, if the company reported negative return on equity or if analyst estimates on EPS fell by more than 10 per cent over three months. When sold, the positions were replaced with the highest-ranked stock not already owned in the portfolio. Over this period, the strategy produced an annualized total return of 12.9 per cent, while the S&P 600 SmallCap Index registered a total return of 6.8 per cent.

The stocks that qualify for purchase today are listed in the accompanying table. It is always recommended to speak to a financial adviser or investment professional before investing.

Select U.S.-listed stocks that are outside the S&P 500

RankCompanySymbolMkt. Cap. (US$ Mil.)10Y Div. Grwth. Rate (%/Y)10Y Avg. ROE (%)10Y EPS Dev.5Y Dev. of Rtns. Var. of EPS Estim. (%)Trailing ROE (%)3M EPS Est. Rev. (%)Div. Yld. (%)Recent Close (US$)Price Chg. From Month End, 12M Ago (%)
1Herman Miller Inc.MLHR-Q2,677.236.435.98.627.31.225.82.41.945.3320.1
2Maximus Inc.MMS-N4,963.256.522.58.226.71.420.52.11.377.7821.1
3Wyndham Destin. *WYND-N4,189.820.81,359.110.926.23.352,293.03.64.045.438.8
4Brinker Int'l Inc. *EAT-N1,577.615.112,677.67.229.52.239,775.03.73.642.07-6.7
5Nic Inc.EGOV-Q1,384.717.033.06.932.30.724.92.51.520.6841.9
6Dicks Sporting GoodsDKS-N3,488.660.517.68.636.61.316.73.02.838.611.8
7J&J Snack FoodsJJSF-Q3,608.426.512.44.621.33.712.00.01.0191.5228.3
8Deluxe Corp.DLX-N1,983.02.753.62.824.818.828.91.52.646.19-16.8
9Hubbell Inc.HUBB-N7,213.511.518.66.722.01.123.80.92.5132.581.8
10Eaton Vance Corp.EV-N5,059.49.341.710.925.02.035.50.33.144.59-12.5
11CSG Systems Int'l Inc.CSGS-Q1,700.227.424.610.126.72.928.92.61.751.5130.5
12Natl Health InvestorsNHI-N3,607.67.213.42.618.47.411.40.05.083.214.2
13Scotts Miracle-GroSMG-N5,615.212.732.516.422.84.050.13.62.3101.1831.3
14Brown & Brown Inc.BRO-N10,114.69.611.28.715.83.112.71.90.935.9622.7
15National Retail Prop.NNN-N9,151.93.46.27.119.40.67.13.03.755.9729.4

Source: Morningstar CPMS 

*Note that WYND and EAT both have very high ROE figures because of a low or negative book value of equity. These extreme values were accounted for in the analysis. 

Ian Tam, CFA, is a relationship manager for CPMS at Morningstar Research Inc.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies