In the filter created earlier this week for The Globe and Mail, we screened for US wealth creators with low volatility by using the following criteria for the S&P 500 universe:
- 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.
Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.
