Skip to main content

What are we looking for?

We’ve all heard the news that the S&P 500 has been undergoing the longest bull market ever, therefore, today we decided to focus on a sector that has experienced the greatest growth over this period – the Consumer Discretionary sector.

The screen

This strategy uses the Inovestor for Advisors platform to screen our U.S. universe using the following criteria:

  • Positive change in economic value-added (EVA) over three months and 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 return on capital greater than 10 per cent, reported as of last quarter’s end;
  • A positive free-cash-flow-to-capital ratio. This ratio gives us 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. We are looking for a ratio greater than 5 per cent, which is excellent;
  • A dividend-yield greater than 1.5 per cent;
  • A positive share-price return over one year.

For informational purposes, we have also included the share price, market capitalization and the price/intrinsic value. (Intrinsic value is based on proprietary EVA calculations found on the Inovestor software.)

Story continues below advertisement

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

Fourteen companies showed up on our filter. We arranged the results based on a descending free-cash-flow-to-capital ratio as high free cash flows signal that the company can pay its expenses and still have enough cash to pursue projects for growth and expansion.

An interesting result is Tapestry Inc., a multinational luxury fashion company owning big brands such as Coach, Kate Spade and Stuart Weitzman. With a dividend yield of 2.89 per cent, Tapestry is one of the few that is trading close to its intrinsic value, making the stock fairly priced and properly reflecting the performance. On the other hand, Vail Resorts Inc., a manager and owner of ski resorts throughout the United States, is trading at five times its intrinsic value. That aside, 2018 has been a great year so far for Vail Resorts with tremendous year-to-date return of 40 per cent and earning surprises in the first two quarters.

Lastly, the top finding on the list is Marine Products Corp., a manufacturer and distributor of Chaparral boats. Marine Products Corp. is doing well based on return on capital of 30 per cent and overall EVA performance, however, the stock is thinly traded.

Consumer Discretionary stocks that benefit the most from bull market

Company Ticker Market Cap. (US$Mil) 1Yr Return (%) 3M EVA Variation (%) 12M EVA Variation (%) Return On Capital (%) FCF/Capital (%) Price/Intrinsic Value Recent Price (US$) Div. Yield (%)
Marine Products Corp. MPX-N 661 31.7 0.38 0.99 29.9 18.3 4.5 19.13 2.19
Home Depot Inc. HD-N 230,489 34.6 0.36 0.25 32.2 16.1 4.1 201.3 1.94
Canterbury Park Holding Corp. CPHC-Q 68 31.5 0.57 3.67 14.4 14.4 1.8 15.25 1.74
Lowe's Cos. Inc. LOW-N 86,615 38.0 0.06 0.49 17.0 11.4 3.0 106.8 1.72
Tapestry Inc. TPR-N 14,697 8.3 0.23 0.78 10.4 10.9 0.9 51.03 2.89
Best Buy Co. Inc. BBY-N 23,064 40.7 0.46 0.69 10.5 8.5 2.9 82.08 1.92
MSC Industrial Direct Co. MSM-N 4,866 20.9 0.20 0.40 17.3 8.3 1.4 86.06 2.28
Snap-On Inc. SNA-N 9,932 14.2 0.09 0.37 13.2 8.3 1.4 176.09 1.97
Nordstrom Inc. JWN-N 10,395 27.8 0.42 1.35 11.1 7.9 1.1 62.06 2.82
Carter's Inc. CRI-N 4,895 21.2 0.05 0.41 15.0 7.3 1.1 105.13 1.51
Vail Resorts Inc. MTN-N 11,927 40.1 0.40 0.92 15.2 6.5 5.0 295.36 2.02
Magna International Inc. MGA-N 18,216 10.4 0.23 0.54 14.4 6.5 0.6 52.66 2.10
Las Vegas Sands Corp. LVS-N 51,646 6.4 0.11 0.80 23.0 5.7 3.8 65.54 3.88
Meredith Corp. MDPEB-OTC 2,533 4.2 0.87 1.47 19.3 5.2 2.0 56.18 3.69
Group Average:(14/1263) 33,572 23.6 0.32 0.94 17.4 9.7 2.4 98.2 2.33

Source: Inovestor

Noor Hussain is an account executive for Inovestor Inc.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

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:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • 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. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

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.
Cannabis pro newsletter