What are we looking for?
Profitable North American industrial companies.
The screen
My colleague, Rob Belanger, and I started with North American-listed companies larger than $1-billion (U.S.) in market capitalization and sorted them from the largest to the smallest.
The EV/EBITDA is the enterprise value (market value of debt plus equity minus cash) divided by earnings before interest, taxes, depreciation, and amortization, and is one of the most commonly used valuation metrics. We are looking for a low number.
A high accounts-receivable turnover ratio implies that a company's extension of credit and collection of receivables are efficient. Only companies with a ratio greater than six are shown.
The gross margin growth over the past four quarters is the total sales revenue minus the cost of goods sold, divided by total sales, expressed as a percentage. We are looking for a high number, and only companies showing 10 per cent or greater growth over the previous four quarters are shown.
The profit margin growth over the past four quarters is a ratio of profitability calculated as net income divided by revenues, and expressed as a percentage. It measures how much out of every dollar of sales a company actually keeps in earnings. A high number is preferred, and only companies showing growth of 10 per cent or more over the previous four quarters are shown.
The price-to-cash-flow (P/CF) ratio represents the amount an investor is willing to pay for a dollar generated from a company's operations. A low number is preferred.
What did we find?
Fluor Corp. is one of the world's largest engineering, construction, maintenance and project management companies, and it leads our screen in the EV/EBITDA category.
Aerospace and defence company Lockheed Martin Corp. outperforms all companies in the gross margin growth category, while a similar company, GenCorp Inc., heads up the profit margin growth ratio.
Investors should consult an investment professional or conduct further research before buying any of the companies listed here.
Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.