What are we looking for?
Companies that prioritize profitability but also take into account risk, while displaying a solid price momentum. While being less restrictive, we will also consider growth and valuation.
Companies that possess several desirable characteristics are better equipped to weather changes in market conditions or economic cycles, as they have the ability to adapt not only to the investors’ current preferences but also on a fundamental level. This adaptability is a crucial characteristic in today’s constantly changing environment.
The screen (add this screener here)
We screened U.S. stocks focusing on the following criteria:
- Market capitalization greater than $5-billion.
- Economic performance index greater than 2. The EPI represents the return on capital divided by the cost of capital and is a measure of profitability adjusted for risk. An EPI higher than 2 implies robust value creation.
- Beta with the S&P 500 lower than 0.6. A beta lower than 1 is considered less risky than the market.
- Two-year sales growth greater than 6 per cent.
- One-year price return greater than the S&P 500 (-8.4 per cent).
- Price-earnings ratio lower than 30.
For informational purposes, we have also included one-year price outperformance compared with the S&P 500 and dividend yield. Please note that some ratios may be shown as of the end of the previous quarter.
More about Inovestor
Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports.
What we found
11 stocks with several desirable characteristics
| TICKER | NAME | PRICE | MKT VALUE ($ MIL.) | EPI | BETA | 1Y PRICE RTN. (%) | 1Y PRICE OUTPERF. (%) | P/E | 2Y SALES GRTH. (%) | DIV. YLD. (%) |
| GILD-Q | GILEAD SCIENCES, INC. | 83.37 | 103962 | 2.3 | 0.4 | 37.1 | 45.5 | 22.8 | 10.0 | 3.6 |
| MRK-N | MERCK & CO., INC. | 112.33 | 285075 | 2.4 | 0.3 | 32.2 | 40.6 | 19.6 | 22.0 | 2.6 |
| GIS-N | GENERAL MILLS, INC. | 86.9 | 51132 | 2.2 | 0.2 | 24.6 | 33.0 | 18.6 | 7.0 | 2.5 |
| MUSA-N | MURPHY USA, INC. | 253.91 | 5523 | 4.2 | 0.6 | 21.2 | 29.6 | 8.9 | 108.0 | 0.6 |
| DINO-N | HF SINCLAIR CORPORATION | 46.25 | 9115 | 6.5 | 0.6 | 18.6 | 27.0 | 3.2 | 242.0 | 3.9 |
| VRTX-Q | VERTEX PHARMACEUTICALS INCORPORATED | 321.66 | 82670 | 3.8 | 0.5 | 18.1 | 26.5 | 24.8 | 41.0 | N/A |
| MMP-N | MAGELLAN MIDSTREAM PARTNERS, L.P. | 54.73 | 11112 | 2.9 | 0.4 | 11.5 | 19.9 | 13.1 | 42.0 | 7.7 |
| PEP-N | PEPSICO, INC. | 184.36 | 253864 | 2.3 | 0.6 | 6.9 | 15.3 | 28.6 | 22.8 | 2.5 |
| PG-N | PROCTER & GAMBLE COMPANY | 152.22 | 359109 | 2.1 | 0.6 | -2.9 | 5.5 | 25.9 | 8.5 | 2.4 |
| WRB-N | W. R. BERKLEY CORPORATION | 63.1 | 16693 | 2.5 | 0.5 | -5.5 | 2.9 | 12.6 | 38.0 | 0.6 |
| BMY-N | BRISTOL-MYERS SQUIBB COMPANY | 70.74 | 148413 | 2.8 | 0.3 | -6.1 | 2.3 | 23.8 | 9.0 | 3.2 |
Gilead Sciences Inc. is a biopharmaceutical company that specializes in researching, developing and commercializing innovative medicines. The company has achieved an impressive performance, outperforming the S&P 500 by a significant 45.5 per cent. It’s the top performer of our list. Gilead Sciences generates 60 per cent of its revenue from HIV treatments, which form a resilient portion of its portfolio. This combination of a high-quality portfolio that generates recurring revenue, along with a significant research and development and acquisition budget, Gilead Sciences could be a promising option.
General Mills is a multinational food company that manufactures a variety of consumer products. The company’s recent financial performance has been solid, with a quarterly earnings per share of 0.97 disclosed on March 23, which was greater than the consensus of 0.92. This led to an increase in the company’s full-year outlook. Consequently, the 24.6-per-cent share price increase appears to be based on improvements in fundamentals. Despite facing the challenges of food inflation within the industry, General Mills appears to have handled it efficiently. With a reasonable price-to-earnings ratio of 18.6 and a low beta of 0.2, General Mills could be a sound defensive pick.
Murphy USA, which owns fuel stations and convenience stores across the United States, has the second-lowest price-to-earnings ratio and second highest two-year sales growth of our list, at 8.8 and 108 per cent, respectively. The company’s economic performance index of 4.2, the second highest of our list, highlights its exceptional capital allocation toward profitable and low-risk investment opportunity.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
Anthony Ménard, CFA, is vice-president of data management at Inovestor.
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