Validea's pick of the week provides a detailed report on a company that scores well in the stock-screening service's model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor provides marketing and data services to Validea.ca and receives compensation. Try it.
Southwest (LUV-N) is the world's largest discount airline, with routes to over 100 destinations, primarily across the United States.
The company exhibits both value and growth characteristics, scoring highly on the Corner Stone Growth methodology, as developed by James O'Shaughnessy in his book What Works on Wall Street, and also the Joel Greenblatt Magic Formula model, as outlined in The Little Book that Beats the Market.
Southwest's earnings have grown every year for the last five. This, combined with the stock's price-to-sales ratio of 1.28 (anything below 1.5 is considered good) and relative strength score help it rank highly based on the Corner Stone Growth model.
The Magic Formula, which is based on Greenblatt's work, first looks at the stock's earnings yield, which is the inverse of the price-to-earnings ratio. It then looks at a firm's return on total capital. Stocks are ranked by both metrics and the combined ranking is used as the final score. Southwest has an earnings yield of 15.8 per cent, putting it in the 27th spot among all stocks, and its return on capital is in the 353rd place. The combined ranking places Southwest as the 53rd-best stock in the market.
Currently trading around $42 a share, LUV carries a yield of around 1 per cent.
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