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What are we looking for?

It is evident that with the current fluctuations in the market, indices are not the most reliable source when it comes to stock selection. Hence, we look for U.S. companies that are highly profitable and with a low beta, which points to their low volatility.

The screen

We screened the S&P 500 for companies with a minimum market capitalization of US$1-billion and searched for the following metrics:

  • Positive change in economic value-added (EVA) over 12 months. This measures the momentum of the wealth-creating ability of the company. Note that EVA is the net operating profit after tax, or NOPAT, minus capital charge (cost of capital times the amount of invested capital);
  • A positive sales change over 12 months;
  • A positive change in net operating profit over 12 months;
  • Minimum value of free-cash-flow-to-capital of 5 per cent. This will give a sense of how well the company utilizes its invested capital to generate free cash flow to pay debt, increase or at least maintain dividends;
  • Beta of less than one: We are searching for stocks that move less than the market, which protects against a market downfall.
  • A price to earnings ratio of a maximum of 25.

Cost of capital and performance index are added for informational purposes.

More about Inovestor

Inovestor for Advisers is a fundamental analysis application based on the economic value-added (EVA) approach. It aids advisers in quickly identifying attractive investment opportunities and easily communicating them to their clients. In addition to providing detailed reports on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts), Inovestor allows investors to create personalized filters and build custom portfolios.

What we found

Only 11 companies out of 500 made the cut using our set of criteria. We found that approximately 50 per cent of the companies are derived from the consumer discretionary and consumer staples sector.

All of the companies possess an Economic Performance Index (EPI) (return on capital divided by the cost of capital) above 1. A positive EPI demonstrates that the company is generating wealth for the shareholders.

DXC Technology has the highest free-cash-flow ratio of 30 per cent with a steadily increasing EVA. The higher the EVA, the more value a company is generating for its shareholders.

In addition, HCA Healthcare is the only company from the healthcare sector that made the list with the highest sales and showing positive change in EVA. Similarly, the data indicate that Starbucks’ sales are rising and the company also shows signs of continued growth and profitability.

Profitable U.S. large-cap stocks

CompanyTickerMarket Cap. ($US Mil.) Cost of CapitalEVA12M EVA % Var.Sales (US$Mil)12M Sales Chg.12M NOP Chg.Price/EarningsFCF/CapitalEPIRecent Price (US$)Beta
HCA Healthcare IncHCA-N37,3845.8%2,444.140.0744,4146.1%$106.510.48
Tyson Foods Inc.TSN-N25,8955.6%2,443.860.8639,9838.7%$71.810.18
DXC Technology Co.DXC-N23,9327.9%2,777.380.9324,556222.8%12.513.630.7%1.0$83.860.92
Starbucks Corp.SBUX-Q78,9497.6%2,202.740.2923,4666.8%0.318.56.5%2.4$57.110.63
Broadcom Inc.AVGO-Q117,8848.6%15,632.682.1619,64820.9%64.710.111.9%2.8$270.230.91
O'Reilly Automotive Inc.ORLY-Q23,2768.7%883.9460.129,1045.2%0.120.820.0%2.6$282.930.94
Darden Restaurants Inc.DRI-N11,6495.8%608.9131.217,88112.2%$94.100.19
Constellation Brands Inc.STZ-N44,0355.8%1,783.501.057,5863.5%0.617.25.0%2.0$233.020.08
Fiserv Inc.FISV-Q31,4378.4%1,124.580.515,7423.1%0.622.811.0%2.0$76.490.81
Church & Dwight Co.CHD-N12,2886.4%661.2330.303,90510.9%0.716.29.1%2.6$50.260.38
H&R Block Inc.HRB-N4,9505.9%433.3592.483,1604.1%$23.660.31
Group Average:(11/500)37,4257.0%2,817.850.9117,22227.7%7.315.611.5%2.2$122.730.53

Source: Inovestor

Tiffana Paulrajah is an account executive for Inovestor Inc.

Editors Note: An earlier version of the story was accompanied by the incorrect table.

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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 24/05/24 4:00pm EDT.

SymbolName% changeLast
Boeing Company
Comcast Corp A
Lowe's Companies
Lyondellbasell Industries NV
Dxc Technology Company
Starbucks Corp
Broadcom Ltd
Applied Materials
Sherwin-Williams Company
Ross Stores Inc
Parker-Hannifin Corp
Lam Research Corp
O'Reilly Automotive
Snap-On Inc
Acuity Brands Inc

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