What are we looking for?
Companies in the U.S. that offer steady growth.
More about today's screen
With the help of Morningstar CPMS, we did a similar screen for Canadian stocks a couple weeks ago. The U.S. screen, called the Asset Growth Model Portfolio, is similar but has some differences. For instance, the Canadian one looks for cheaper stocks using price to earnings and price to book value per share, while the U.S. version works without the focus on low valuation.
The Asset Growth Model Portfolio looks for stocks with:
-a high reinvestment rate, which is calculated as return on equity after dividends;
-upward earnings revisions;
-high earnings momentum shown by earnings growth over the past four quarters;
-positive earnings surprises in last quarter;
-strong stock performance over the last three and six months.
More about CPMS
CPMS is a Toronto-based equity research and portfolio analysis firm owned by Morningstar Canada. It maintains a database of about 680 of the largest and more liquid Canadian stocks, plus another 2,100 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
The results are the top 20 stocks in CPMS's database of U.S. stocks.
Like the Canadian steady growth portfolio, this strategy has struggled since the financial crisis but is coming back in style and has performed well over the long term.
The Asset Growth Model Portfolio is down 4 per cent over the past three years, versus a flat performance by the S&P 500 (all return figures are total returns). But so far this year it is up 9.5 per cent, versus 5.3 for the S&P 500. Over the last 10 years, the Asset Growth portfolio is up 12.7 per cent, versus 8.1 per cent for the S&P 500.
"It might seem counterintuitive, but the model also rewards stocks that have gone up the most over the trailing three and six months," said Jamie Hynes, senior consultant with CPMS. "This makes the model more susceptible to the overall market's gyrations versus our value-based models, but results since inception on Dec. 31, 1993, are very comparable."