What are we looking for?
U.S.-listed mid-capitalization companies with healthy profitability metrics.
The U.S. market is massive and limiting ourselves to big names could lead us to miss opportunities. For that reason, today we lower our market cap threshold in the hope of finding “pearls” that might otherwise have been overlooked.
The screen
We screened U.S. stocks focusing on the following criteria:
- Market capitalization between US$2-billion and US$5-billion;
- Five-year return on capital higher than 12 per cent – we want a highly profitable company;
- StockPointer (SP) performance score higher than 75. The score mainly considers risk-adjusted return on capital, earnings per share growth and free cash flow per share. The score varies between zero and 100. A score above 75 implies a top performing company.
- Price-to-intrinsic-value between 0.6 and three. The intrinsic value is calculated automatically by our software using a discounted cash flow. A value of one would suggest a fair price, higher than one an overvalued stock and below one an attractive stock.
- Two-year EVA-to-capital-growth rate higher than 1 per cent. The EVA (economic value added) represents the value that a company created through efficient capital allocation. We look for companies that managed to increase their value creation in comparison of their capital.
For informational purposes, we have also included five-year growth rate in annual earnings per share; beta; dividend yield; and one-year price return. (A beta lower than one implies that the stock should be less volatile than the market.) Please note that some ratios may be shown as of end of previous quarter.
More about Inovestor
Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian and U.S. stocks and American depositary receipts).
| TICKER | NAME | PRICE | MKT. CAP ($ MIL.) | 5Y ROC (%) | SP PERF. SCORE | P/IV | 2Y EVA/CAP GRTH. (%) | 5Y ANN. EPS GRTH. (%) | BETA | 1Y PRICE RTN (%) | DIV. YIELD (%) |
| MLI-N | Mueller Industries, Inc. | 52.64 | 3019.8 | 15.8 | 84.9 | 0.77 | 15.1 | 56.9 | 1.41 | 75.8 | 1.0 |
| BKE-N | Buckle, Inc. | 41.62 | 2072.0 | 17.7 | 83.6 | 0.76 | 15.4 | 33.3 | 0.85 | 67.2 | 3.2 |
| WGO-N | Winnebago Industries, Inc. | 67.69 | 2238.0 | 17.9 | 82.1 | 0.81 | 2.1 | 88.8 | 1.90 | 41.6 | 1.1 |
| WDFC-Q | Wd-40 Company | 227 | 3111.9 | 19.6 | 81.8 | 1.93 | 2.2 | 9.1 | 0.25 | -7.2 | 1.3 |
| SNBR-Q | Sleep Number Corporation | 88.34 | 2090.0 | 28.7 | 80.8 | 1.04 | 18.3 | 59.9 | 1.89 | 34.1 | – |
| LCII-N | Lci Industries | 139.64 | 3528.6 | 16.6 | 79.7 | 1.11 | 1.3 | 29.5 | 1.55 | 23.3 | 2.6 |
| WWE-N | World Wrestling Entertainment | 61.09 | 4644.5 | 19.8 | 79.5 | 1.03 | 4.5 | 58.5 | 0.64 | 59.1 | 0.8 |
| ATKR-N | Atkore Inc | 94.53 | 4358.1 | 18.8 | 79.2 | 0.96 | 14.5 | 80.0 | 1.96 | 340.5 | – |
| MC-N | Moelis & Co. Class A | 72.74 | 4790.0 | 55.7 | 78.7 | 0.95 | 48.1 | 49.7 | 0.97 | 93.4 | 3.3 |
| LOB-Q | Live Oak Bancshares, Inc. | 89.18 | 3858.3 | 15.3 | 78.3 | 2.61 | 18.3 | 127.2 | 1.81 | 134.8 | 0.1 |
| VGR-N | Vector Group Ltd. | 13.26 | 2044.1 | 16.7 | 77.1 | 0.67 | 11.2 | 58.6 | 0.73 | 42.1 | 6.0 |
Mueller Industries Inc., a manufacturer specializing in copper and copper alloy products, has the highest performance score of our list standing at 84.9 while trading at a favourable price-to-intrinsic-value of 0.77. On Oct. 19, the company presented robust results fuelled by the surge in copper prices. According to Greg Christopher, Mueller’s chief executive officer, the demand is solid, the backlog is building and this pace should be maintained for the foreseeable future.
Apparel retailer Buckle Inc. not only produces strong results as shown by its performance score of 83.6, but also has some defensive attributes such as a 3.2-per-cent dividend and a beta of 0.85. However, apparel retailers are not what we would qualify as defensive – they tend to progress in a procyclical manner. Finding a good entry point in this kind of stock can be exceptionally lucrative; the stock’s rebound of 232 per cent from its bottom in April, 2020, is a sweet reminder. The company is expected to report its third-quarter earnings on Nov. 19.
Bed manufacturer Sleep Number Corp. has an aggressive profile. It has the second-highest five-year return on capital and it’s tied for second highest in two-year EVA/capital growth. The company’s 360 smart bed innovation seems to have paid off. On Oct. 28, the company reported a stellar third-quarter sales growth of 21 per cent and earnings growth of 24 per cent compared with the same period a year ago. The stock price has fallen 41 per cent from its record high of US$151.44 in March, but is up 34.1 per cent over a one-year horizon.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more details about these stocks, subscribe to the Inovestor for Advisors platform for free: inovestor.com/en-CA/store/
Anthony Ménard, CFA, is vice-president of data management at Inovestor.
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