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What are we looking for?

Non-financial U.S. companies offering quality at a fair price.

The United States is home to some of the world’s largest corporations, which often dominate their industries. However, with this dominance frequently comes steep valuations.

In our view, high valuations sometimes signal a stock’s popularity more than its potential for future performance. We believe focusing on reasonable valuations doesn’t mean compromising on quality – it means seeking out companies that may be overlooked in today’s market trends.

Today, we’ll explore large U.S. companies with solid track records in profitability and cash flow generation that are still, surprisingly, trading at reasonable valuations.

The screen

We screened non-financial U.S. stocks using the following criteria:

  • market capitalization greater than $US20-billion;
  • Inovestor Stockpointer Performance (SP) score greater than 65. The score mainly considers risk-adjusted return on capital, earnings-a-share growth and free cash flow for a share. The score varies between zero and 100. A score of 65 or more implies an above average performing company;
  • five-year free cash flow to capital greater than 3 per cent and five-year average return on capital (ROC) greater than 10 per cent;
  • a future growth value (FGV) on enterprise value (EV) ratio lower than 50 per cent. We assume the company will produce its net operating profit after taxes (NOPAT) forever without growth and we discount it using the company’s cost of capital. This computation yields an intrinsic value, which we deduct from the EV, resulting in the future growth value that we divide by the EV. The metric has the objective of removing expensive companies;
  • positive ROC change over three months and one year.

For informational purposes, we have also included dividend yield and one-year price return.

More about Inovestor

Inovestor is a Canadian fintech company with more than 20 years of experience that has partnered with Morningstar in an alliance, solidifying Inovestor’s position as the industry’s leading alternative analysis tool. To learn more visit our website.

What we found

15 U.S. long-term performers

NAMETICKERPRICE ($US)MKT VALUE ($US BIL.)SP PERF. SCORE5Y FCF/CAP (%)FGV/EV (%)5Y ROC (%)3M ROC CHG. (%)1Y ROC CHG. (%)DIV. YLD (%)1Y PRICE RTN. (%)
Lockheed Martin CorporationLMT-N605.13143.479.68.212.620.20.22.22.250.8
Godaddy, Inc. Class AGDDY-N156.3322.178.412.319.312.40.515.2-111.9
Sysco CorporationSYY-N75.4137.173.78.620.911.61.42.22.716.0
Philip Morris International Inc.PM-N119.1185.274.14.323.723.51.71.84.530.4
Autozone, Inc.AZO-N3033.5851.366.226.124.624.02.83.1-21.5
Kimberly-Clark CorporationKMB-N140.8947.572.73.926.714.30.41.13.516.4
Colgate-Palmolive CompanyCL-N99.0480.975.45.928.915.91.12.82.040.4
Honeywell International Inc.HON-Q203.78132.467.13.634.212.10.20.12.211.7
Target CorporationTGT-N152.8870.677.16.636.414.10.91.82.943.4
Procter & Gamble CompanyPG-N168.88398.183.213.338.115.00.22.02.415.7
Marriott International, Inc. Class AMAR-Q254.6172.079.85.040.910.60.30.41.030.7
Church & Dwight Co., Inc.CHD-N101.0424.774.39.141.713.70.34.51.19.8
Abbott LaboratoriesABT-N112.64196.072.84.147.410.70.10.92.017.8
Carlisle Companies IncorporatedCSL-N454.4821.182.49.347.712.80.21.90.977.7
Lululemon Athletica Inc.LULU-Q270.3833.577.019.049.227.92.30.6--26.9

Source: Inovestor

Long-term performers

Lockheed Martin Corp. LMT-N is a global leader in aerospace, defence and security. The company boasts a solid five-year return on capital and SP performance score of 20.2 per cent and 79.6, respectively, ranking third-highest on our list. Amid continuing global conflicts and increased defence spending, its ROC has risen by 2.2 per cent over the past year, potentially reflecting increased demand for Lockheed Martin’s products and services during those troubling times. The company is expected to publish its third-quarter results before market opening on Oct. 22.

GoDaddy Inc. GDDY-N, a prominent player in web hosting and domain services, stands out with an impressive five-year free cash flow-to-capital ratio of 12.3 per cent, the highest among the companies listed. It also exhibits an eye-popping one-year ROC change of 15.2 per cent, which could suggest an outlier that may be skewing other metrics, such as the performance score. GoDaddy has achieved a one-year share price return of 111.9 per cent, the top performer in our screen. The company is anticipated to release its second-quarter results in early November, which could provide further insights.

Sysco Corp. SYY-N, a wholesale distributor of restaurant food, showcases a solid five-year FCF-to-capital of 8.6 per cent and an above-average SP performance score of 73.7. While the restaurant industry is facing short-term challenges, there are signs of improvement. Sysco’s three-month ROC change of 1.4 per cent indicates recent momentum, and its one-year ROC change of 2.2 per cent further supports this positive trend. The company is expected to release its first-quarter results in early November.

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.

Anthony Ménard, CFA, is vice-president of data management at Inovestor.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 21/11/24 9:42am EST.

SymbolName% changeLast
LMT-N
Lockheed Martin Corp
+0.24%536.03
GDDY-N
Godaddy Inc
+0.24%190.58
SYY-N
Sysco Corp
+0.16%73.75
PM-N
Philip Morris International Inc
+0.21%130.67
AZO-N
Autozone
+0.18%3055.02
KMB-N
Kimberly-Clark Corp
-0.08%136.26
CL-N
Colgate-Palmolive Company
-0.37%93.56
HON-Q
Honeywell International Inc
-0.26%226.08
TGT-N
Target Corp
+1.13%123.09
PG-N
Procter & Gamble Company
-0.16%170.61
MAR-Q
Marriot Int Cl A
+0.6%281.24
CHD-N
Church & Dwight Company
-0.31%110.95
ABT-N
Abbott Laboratories
-0.5%115.35
CSL-N
Carlisle Companies Inc
+1.14%436.64
LULU-Q
Lululemon Athletica
+0.61%310.19

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