What are we looking for?
S&P 500 companies showing positive sales growth, positive economic value-added (EVA) metrics and trading at low multiples.
The screen
We screened the S&P 500 by looking at the following metrics:
- An economic performance index, or EPI (return on capital divided by cost of capital) at 1.0 or above. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth (EVA) for its shareholders (a higher EPI ratio signals a greater rate of wealth creation);
- Positive sales growth over the past 12 months;
- A price-to-earnings (P/E) ratio of 18.0 or lower;
- A price-to-book-value ratio of 1.5 or lower.
Return on capital, five-year average P/E, dividend yield and year-to-date stock performance are displayed for informational purposes.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 6,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer (stockpointer.ca) also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only seven companies fit our criteria. Discovery Communications Inc., a global media company, shows up as the highest economic performer of the group with an EPI of 2.3. The stock has been under pressure since late 2014, and has not been able to recover yet; it's still trading close to a four-year low.
Berkshire Hathaway Inc., the diversified holding company run by Warren Buffett and Charles Munger, is the only stock on the list that has been able to offer a positive return, of 8 per cent, to its shareholders since the beginning of the year.
Ford Motor Co. is the stock trading at the most interesting multiples, and by far. The current P/E of 6.1 is very low, both when comparing to the S&P 500's average P/E of 24 and to its own five-year average P/E of 9.1. The current dividend yield is also attractive at 4.45 per cent. Lower gas prices since late 2014 have certainly helped the company's performance even though the stock's price hasn't followed; Ford's U.S. vehicle sales for the first quarter of 2016 were the highest since 2006, and 2015 was also their strongest full year since 2006.
Investors are advised to do additional research prior to investing in any of the companies mentioned.
Jean-Didier Lapointe is a financial analyst for StockPointer at Inovestor Inc.