20 Stocks That Will Help You Sleep At Night
This article was originally published on this site
With U.S. stocks at record highs, investors are fretting whether this nearly eight-year-old bull market has much life left in it.
Because the future can’t be predicted, maybe it’s best not to think about it.
Thus, we have compiled a list of stocks that have turned out to be long-term winners — and may continue to be.
We compared companies’ long-term returns on invested capital (ROIC) and saw a correlation with long-term outperformance for their stocks. According to FactSet, a company’s ROIC is its earnings divided by the sum of the carrying value of its common stock, preferred stock, long-term debt and capitalized lease obligations.
But “the investor of today does not profit from yesterday’s growth,” according to Berkshire Hathaway CEO Warren Buffett. So we have to look ahead as well.
To come up with a filtered list of S&P 500 companies with the highest average ROIC, we added some measures of shorter-term performance and also looked ahead. The companies making the list had to show increases in sales per share over the past 12 months and for the past quarter, and analysts’ consensus estimates had to predict increases in sales and earnings in 2017 and 2018.
Here are the 20 S&P 500 companies meeting the above criteria that have had the highest returns on invested capital over the past five years, according to FactSet:
| Company | Ticker | Industry | ROIC – 5 years through most recent reported quarter, through Feb. 10 | Total return – 5 years through Feb. 10 |
| VeriSign Inc. | VRSN | Internet Software/ Services | 311.3% | 127% |
| Accenture PLC Class A | ACN | Information Technology Services | 59.8% | 131% |
| Marriott International Inc. Class A | MAR | Hotels/ Resorts/ Cruiselines | 57.9% | 159% |
| AutoZone Inc. | AZO | Specialty Stores | 48.6% | 109% |
| Mastercard Inc. Class A | MA | Finance/ Rental/ Leasing | 43.1% | 179% |
| Moody’s Corp. | MCO% | Financial Publishing/ Services | 40.5% | 202% |
| TJX Cos. | TJX | Apparel/ Footwear Retail | 40.3% | 138% |
| Ross Stores Inc. | ROST | Apparel/ Footwear Retail | 40.1% | 178% |
| Paychex Inc. | PAYX | Data Processing Services | 36.8% | 122% |
| Lockheed Martin Corp. | LMT | Aerospace & Defense | 32.8% | 256% |
| Idexx laboratories Inc. | IDXX | Medical Specialties | 32.5% | 231% |
| Linear Technology Corp. | LLTC | Semiconductors | 32.0% | 116% |
| Coach Inc. | COH | Apparel/ Footwear Retail | 31.9% | -41% |
| S&P Global Inc. | SPGI | Financial Publishing/ Services | 30.6% | 215% |
| Clorox Co. | CLX | Househould/ Personal Care | 30.2% | 117% |
| Sherwin-Williams Co. | SHW | Industrial Specialties | 30.2% | 230% |
| Altria Group Inc. | MO | Tobacco | 29.8% | 212% |
| Tractor Supply Co. | TSCO | Specialty Stores | 27.4% | 87% |
| Priceline Group Inc. | PCLN | Other Consumer Services | 27.4% | 202% |
| Mettler-Toledo International Inc. | MTD | Misc. Manufacturing | 26.3% | 157% |
| Source: FactSet | ||||
One remarkable thing about this list is that 18 of the 20 companies have beaten the index’s five-year total return of 92%.
Here’s how these companies have grown their sales per share for the most recent reported quarter and 12-month period:
| Company | Sales per share – most recent reported quarter through Feb. 10 | Sales per share – year-earlier quarter | Growth of quarterly sales per share | Sales per share – past 12 reported months through Feb. 10 | Sales per share – year-earlier 12-month period | Growth of sales per share |
| VeriSign Inc. | $2.28 | $2.04 | 12% | $8.87 | $7.96 | 11% |
| Accenture PLC Class A | $13.57 | $12.61 | 8% | $53.07 | $48.88 | 9% |
| Marriott International Inc. Class A | $14.57 | $13.39 | 9% | $58.39 | $51.37 | 14% |
| AutoZone Inc. | $83.08 | $76.63 | 8% | $355.60 | $324.25 | 10% |
| Mastercard Inc. Class A | $2.53 | $2.23 | 13% | $9.80 | $8.50 | 15% |
| Moody’s Corp. | $4.72 | $4.12 | 14% | $17.91 | $16.98 | 6% |
| TJX Cos. | $12.53 | $11.39 | 10% | $48.89 | $44.19 | 11% |
| Ross Stores Inc. | $7.85 | $6.88 | 14% | $31.72 | $28.64 | 11% |
| Paychex Inc. | $2.13 | $1.99 | 7% | $8.44 | $7.82 | 8% |
| Lockheed Martin Corp. | $46.59 | $41.64 | 12% | $164.89 | $146.70 | 12% |
| Idexx laboratories Inc. | $4.89 | $4.35 | 12% | $19.54 | $17.12 | 14% |
| Linear Technology Corp. | $1.53 | $1.42 | 8% | $6.05 | $5.88 | 3% |
| Coach Inc. | $4.69 | $4.58 | 3% | $16.17 | $15.23 | 6% |
| S&P Global Inc. | $5.35 | $5.05 | 6% | $21.35 | $19.35 | 10% |
| Clorox Co. | $10.75 | $10.22 | 5% | $44.67 | $43.09 | 4% |
| Sherwin-Williams Co. | $29.43 | $27.95 | 5% | $125.56 | $120.66 | 4% |
| Altria Group Inc. | $2.43 | $2.42 | 1% | $9.91 | $9.62 | 3% |
| Tractor Supply Co. | $14.53 | $12.15 | 20% | $50.69 | $45.51 | 11% |
| Priceline Group Inc. | $73.85 | $60.69 | 22% | $207.44 | $174.50 | 19% |
| Mettler-Toledo International Inc. | $26.65 | $24.27 | 10% | $92.94 | $84.83 | 10% |
| Source: FactSet | ||||||
And here’s how analysts expect earnings per share to increase for these companies this year and in 2018:
| Company | Actual or estimated EPS – 2016 | Estimated EPS – 2017 | Estimated EPS – 2018 | Expected EPS growth – 2017 | Expected EPS growth – 2018 |
| VeriSign Inc. | $3.61 | $3.86 | $4.21 | 7% | 9% |
| Accenture PLC Class A | $5.34 | $5.87 | $6.40 | 10% | 9% |
| Marriott International Inc. Class A | $3.62 | $4.04 | $4.69 | 12% | 16% |
| AutoZone Inc. | $40.70 | $45.54 | $50.52 | 12% | 11% |
| Mastercard Inc. Class A | $3.77 | $4.26 | $4.96 | 13% | 17% |
| Moody’s Corp. | $4.71 | $5.07 | $5.61 | 8% | 11% |
| TJX Cos. | $3.51 | $3.79 | $4.17 | 8% | 10% |
| Ross Stores Inc. | $2.82 | $3.14 | $3.48 | 11% | 11% |
| Paychex Inc. | $2.22 | $2.40 | $2.61 | 8% | 8% |
| Lockheed Martin Corp. | $12.38 | $12.63 | $14.07 | 2% | 11% |
| Idexx laboratories Inc. | $2.44 | $2.94 | $3.39 | 20% | 15% |
| Linear Technology Corp. | $2.02 | $2.10 | $2.33 | 4% | 11% |
| Coach Inc. | $1.98 | $2.14 | $2.37 | 8% | 11% |
| S&P Global Inc. | $5.35 | $5.99 | $6.66 | 12% | 11% |
| Clorox Co. | $4.92 | $5.32 | $5.72 | 8% | 8% |
| Sherwin-Williams Co. | $12.45 | $13.88 | $15.47 | 11% | 11% |
| Altria Group Inc. | $3.03 | $3.30 | $3.57 | 9% | 8% |
| Tractor Supply Co. | $3.27 | $3.50 | $3.94 | 7% | 12% |
| Priceline Group Inc. | $64.34 | $73.55 | $84.68 | 14% | 15% |
| Mettler-Toledo International Inc. | $14.80 | $16.68 | $18.60 | 13% | 11% |
| Source: FactSet | |||||
Here’s a summary of analyst ratings for the group, as well as forward price-to-earnings ratios, based on consensus earnings estimates for 2017 and 2018:
| Company | Share ‘buy’ ratings | Share neutral ratings | Share ‘sell’ ratings | Price/consensus 2017 EPS estimate | Price/consensus 2018 EPS estimate |
| VeriSign Inc. | 0% | 71% | 29% | 21.5 | 19.8 |
| Accenture PLC Class A | 55% | 45% | 0% | 20.0 | 18.4 |
| Marriott International Inc. Class A | 56% | 44% | 0% | 21.4 | 18.4 |
| AutoZone Inc. | 61% | 39% | 0% | 16.3 | 14.7 |
| Mastercard Inc. Class A | 80% | 17% | 3% | 25.2 | 21.6 |
| Moody’s Corp. | 20% | 80% | 0% | 21.3 | 19.2 |
| TJX Cos. | 80% | 20% | 0% | 20.3 | 18.5 |
| Ross Stores Inc. | 64% | 36% | 0% | 21.9 | 19.7 |
| Paychex Inc. | 14% | 59% | 27% | 24.3 | 22.4 |
| Lockheed Martin Corp. | 48% | 52% | 0% | 20.6 | 18.5 |
| Idexx laboratories Inc. | 36% | 37% | 27% | 48.3 | 41.9 |
| Linear Technology Corp. | 0% | 94% | 6% | 30.3 | 27.2 |
| Coach Inc. | 57% | 40% | 3% | 17.8 | 16.1 |
| S&P Global Inc. | 75% | 25% | 0% | 21.1 | 19.0 |
| Clorox Co. | 16% | 74% | 10% | 23.9 | 22.2 |
| Sherwin-Williams Co. | 55% | 40% | 5% | 22.1 | 19.8 |
| Altria Group Inc. | 50% | 50% | 0% | 21.9 | 20.3 |
| Tractor Supply Co. | 50% | 50% | 0% | 21.2 | 18.9 |
| Priceline Group Inc. | 80% | 20% | 0% | 22.4 | 19.4 |
| Mettler-Toledo International Inc. | 7% | 86% | 7% | 27.9 | 25.0 |
| Source: FactSet | |||||
In comparison, the S&P 500 trades for 17.8 times aggregate 2017 EPS estimates and for 15.9 times the 2018 aggregate, according to FactSet. The only company on the list trading below either of those P/E ratios is AutoZone Inc.
Then again, companies that consistently bring home strong returns on invested capital don’t come cheap. Buffett had good reason to say: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
The ratings of sell-side analysts are based on 12-month price targets. Maybe people consider a 12-month commitment to be “long-term investing.” But it’s not. Solid returns can take years to accumulate.
So here you have a list that includes some great companies. Most of the stocks aren’t cheap, but they may well pan out over the next several years. This is where your own research in a company’s business strategy comes into play.
Do you think the company will remain competitive in its market for the next 10 or 20 years? That’s the key question.
