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Number Cruncher Stock screen for U.S. wealth creators factors in volatility

What are we looking for?

Following a Number Cruncher we did a few weeks ago for the Canadian market, today we present the same approach for U.S. companies that are considered to be the least volatile wealth creators. Our goal with this screen is to try to differentiate real opportunities that are less volatile than the market.

The screen

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This strategy uses the Inovestor for Advisors platform to screen the S&P 500 using the following criteria:

  • A market capitalization of US$1-billion or more;
  • A beta of one or less. A stock with a beta less than one is considered less volatile than the market;
  • A return on capital greater than or equal to 12 per cent, reported as of last quarter’s end;
  • A cost of capital less than 10 per cent, reported as of last quarter’s end;
  • A positive sales change over 12 months and 24 months;
  • A positive free-cash-flow-to-capital ratio. 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, distribute or increase dividends, reduce debt, etc.; 
  • A dividend yield greater than 1.75 per cent;
  • A positive share-price return over one year.
  • Future-growth-value-to-market-value (FGV/MV) ratio. FGV/MV represents the proportion of the market value of the company that is made up of future growth expectations, rather than the actual profit generated. The higher the percentage, the higher the baked-in premium for expected growth and the higher the risk.

For informational purposes, we have also included the recent share price and economic valued-added (EVA) variation over one and two years. EVA 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);

Please note that some ratios shown are based on an end-of-quarter reporting and the one-year price change is reported as of last month’s end.

More about Inovestor

Inovestor for Advisors is an equity research platform based on the economic profit 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

We arranged the 16 companies resulting from our screener according to market cap. All the companies are trading at a premium except one – H&R Block Inc.

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If we take the ratio of return on capital to cost of capital, Clorox Co. appears to be the highest wealth creator on our list. While this may be the case, it is important to keep an eye out on this stock since it is still trading at a 45.5-per-cent premium while sales are growing at a slower pace and EVA variation has been slowing down (as seen in the EVA 24-month change versus 12-month change).

Darden Restaurants Inc. has generated double-digit sales growth both on a 12- and 24-month horizon. The stock has reacted in line with those results, leading to a 17-per-cent year-to-date return (not shown) and 41.4-per-cent one-year return. Furthermore, Darden is generating returns on capital at 2.9 times the cost of raising that capital. This puts the company in a stable position, which somewhat explains the 37.8-per-cent premium the stock is trading at.

Select S&P 500 dividend stocks

Company Ticker Recent Price (US$) Market Cap (US$Mil) Beta R/C (%) Cost of Capital (%) Sales Chg. 12M (%) Sales Chg. 24M (%) FCF / Capital Div. Yield (LTM) 1Y Price Rtn.  (%) EVA Chg. 12M (%) EVA Chg. 24M (%) FGV on MV (%)
Pfizer Inc. PFE-N 44.06                            258,284.5  0.91 15.7 8.3 1.7 1.8 3.7 3.7 22.4 0.30 3.37 19.1
Intel Corp. INTC-Q 46.66                            215,149.3  0.96 13.1 9.0 7.3 17.0 5.4 2.3 38.1 0.93 0.81 16.8
Union Pacific Corp. UNP-N 164.99                            122,003.5  0.80 26.5 8.0 6.2 8.0 5.2 1.9 43.0 0.09 4.77 53.4
Lockheed Martin Corp. LMT-N 337.66                              96,159.2  0.71 13.8 7.4 6.7 6.8 0.9 2.6 4.9 0.04 -0.55 17.3
Valero Energy Corp. VLO-N 112.24                              48,086.2  0.94 16.0 8.6 27.3 40.1 3.9 2.7 73.1 -0.05 4.46 11.5
Target Corp. TGT-N 87.31                              45,934.9  0.71 13.2 7.4 6.3 3.3 7.0 3.1 60.5 -0.77 0.76 23.3
Sysco Corp. SYY-N 72.97                              37,991.2  0.56 13.7 7.1 6.1 16.6 10.9 2.1 42.1 0.82 1.30 43.6
Public Storage PSA-N 204.23                              35,523.2  0.33 13.2 6.6 3.4 9.7 2.2 3.5 3.5 0.21 0.16 48.0
Paychex Inc. PAYX-Q 75.25                              27,014.8  0.95 13.8 9.7 7.3 14.5 16.2 3.1 28.4 0.14 0.38 72.3
Hormel Foods Corp. HRL-N 40.01                              21,249.5  0.41 15.9 6.9 2.3 2.3 8.0 2.0 27.4 -0.26 0.11 44.2
Clorox Co. CLX-N 152.47                              19,513.5  0.37 21.9 6.4 2.5 6.3 19.1 2.7 4.7 0.04 0.36 45.5
McCormick & Co. MKC-N 130.22                              17,093.6  0.54 12.9 6.7 17.1 20.3 5.3 2.0 31.3 0.24 2.01 58.4
Fastenal Co. FAST-Q 58.90                              16,901.3  0.95 25.4 9.5 13.2 19.3 3.0 2.9 36.8 -0.03 0.86 66.8
Darden Restaurants Inc. DRI-N 112.89                              13,975.8  0.15 17.4 5.9 11.0 17.9 5.4 2.3 41.4 0.64 2.11 37.8
C.H. Robinson Worldwide Inc. CHRW-Q 97.57                              13,537.3  0.43 19.9 6.8 14.8 22.6 7.4 2.2 36.0 -0.37 0.05 43.2
H&R Block Inc. HRB-N 26.12                                5,367.9  0.29 16.2 5.7 3.9 4.7 10.9 3.9 1.2 1.04 3.39 -46.7

Source: Inovestor

Readers are advised to conduct further research before investing in any of the securities shown here.

Noor Hussain is an account executive for Inovestor Inc.

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