WHAT ARE WE LOOKING FOR?
Our search for top wealth-creating companies goes global after covering Canada yesterday.
TODAY'S SCREEN
We start with dividend-paying U.S. stocks and American depositary receipts, which are U.S.-listed versions of foreign stocks, and then apply a kind of wealth-creation analysis called Economic Value Added (EVA). The idea behind EVA is to compare a company's profits against the cost of generating those profits. To accurately compare companies in different sectors, we'll use the Economic Performance Index, which ranks stocks according to the ratio between their return on capital and their cost of capital, which means both debt and shares. A company needs a score of one or greater to be considered a creator of wealth for shareholders.
Today's screen was compiled by the Montreal-based analysis firm Stockpointer (stockpointer.ca), which specializes in EVA. To help uncover bargain-priced wealth creators, Stockpointer has included a comparison of a company's current share price and its intrinsic value according to EVA analysis.
WHAT WE FOUND
Lots of fodder for investors who want exposure to the comparatively safe consumer staples and health care sectors, which are areas where the Canadian market lacks variety. Johnson & Johnson stands out here - it's trading at about half its value according to EVA. Same goes for Imperial Tobacco Group and AstraZeneca, a pharmaceutical company based in London.
Looking for something in the energy sector, which has been hot this week, thanks to surging oil prices? Stockpointer has uncovered a few global energy names that are trading well below their intrinsic value, including Chevron and CNOOC Ltd. (China National Offshore Oil Corp.). Another undervalued energy name on our list is South Africa's Sasol Ltd., which produces motor fuel from coal.
EVA analysis can sometimes highlight a stock that is fully valued or overvalued, even though you might not conclude this from what its shares have done lately. An example is Pepsico stock, which is trading above its worth, according to EVA, and yet is up an unassuming 30 per cent in total over the past three years.
| EVA Top Performers - U.S. Companies | |||||
| Stock | |||||
| EVA | Econ. | Price/ | |||
| Sales | last 12 mo | Perfrm. | intrinsic | ||
| Company | Ticker | (US$-mil) | (US$-mil) | Index | value % |
| Carolina Group | CG-N | 3,969.20 | 827.21 | 4.43 | 76.91 |
| Unilever PLC | UL-N | 16,187.44 | 1,684.44 | 4.19 | 76.10 |
| Imperial Tobacco Group | ITY-N | 6,687.59 | 2,039.60 | 4.19 | 49.67 |
| CNOOC Ltd. | CEO-N | 10,897.29 | 3,466.74 | 4.03 | 51.33 |
| AstraZeneca PLC | AZN-N | 30,270.00 | 5,317.63 | 3.88 | 49.36 |
| Clorox Co. | CLX-N | 5,010.00 | 518.07 | 3.86 | 75.09 |
| Telekomunik Indonesia | TLK-N | 6,631.65 | 1,471.70 | 3.84 | 48.72 |
| Reed Elsevier PLC | RUK-N | 796.30 | 566.22 | 3.71 | 81.72 |
| Pepsico Inc. | PEP-N | 39,474.00 | 4,445.31 | 3.55 | 129.96 |
| Johnson & Johnson | JNJ-N | 61,035.00 | 10,122.59 | 3.48 | 52.39 |
| Magellan Midstream LP | MMP-N | 1,318.12 | 212.39 | 3.13 | 62.50 |
| Sasol Ltd. | SSL-N | 13,629.00 | 1,648.19 | 2.88 | 67.91 |
| Abbott Laboratories | ABT-N | 25,914.23 | 4,433.04 | 2.87 | 63.90 |
| Banco Itau Hldg Fin. | ITU-N | 26,496.58 | 3,076.44 | 2.86 | 44.45 |
| Unilever NV | UN-N | 36,128.11 | 2,396.76 | 2.74 | 93.47 |
| 3M Co. | MMM-N | 24,462.00 | 2,559.95 | 2.73 | 99.93 |
| Diageo PLC | DEO-N | 15,009.13 | 2,368.87 | 2.72 | 68.60 |
| British American Tobacco | BTI-A | 20,706.28 | 3,390.74 | 2.66 | 72.35 |
| McCormick & Co. | MKC-N | 2,916.20 | 192.75 | 2.59 | 84.97 |
| Chevron Corp. | CVX-N | 200,429.00 | 11,168.18 | 2.57 | 64.33 |
| Lloyds TSB Group PLC | LYG-N | 63,712.74 | 4,266.23 | 2.52 | 52.06 |
| Harley-Davidson Inc. | HOG-N | 6,259.67 | 656.72 | 2.42 | 67.56 |
| Brown-Forman - Cl B | BF.B-N | 2,433.50 | 270.84 | 2.42 | 84.82 |
| Amerigas Partners | APU-N | 2,408.95 | 150.37 | 2.38 | 62.04 |
| Energy Transfer Partners | ETP-N | 7,031.79 | 659.09 | 2.38 | 42.96 |
SOURCE: STOCKPOINTER
Rob Carrick