There are many methods to try to find the outperforming stocks and the only perfect information that anyone can tell you is to look backwards. When you look forwards it becomes an educated guess, but there are always methods to minimize the risk. In this column Jean-Didier Lapointe of Inovestor Inc used the software from StockPointer to look at US large capital stocks.

The first thing he did was to use the S&P 500 from that list it was narrowed down to

market capitalization of at least $5 billion.

all companies must pay a dividend

an economic performance index or EPI (return on capital divided by the cost of capital) above 1.5

a positive EVA per share (economic value added or cost of capital – return on capital and multiply the result by the total invested capital.)

a return on capital of 15% or more

Positive free cash flow to capital. A positive number is good; 5% and above is excellent

debt-to-equity ratio to be taken into consideration.

Mr. Lapointe added a few more variables and you can do the same – the analysis can be done by all the reputable brokerage companies.

Company               Mkt Cap       Divid     EPI      Return        EVA          FCF        Debt

(US $Bil)     Yield %                  on Cap                           /Cap       /Equity

Altria Group        124.                  3.57      3.5        24.90 %         2.30        5.9  %           468%

Clorox                      17                   2.36       3.3        21.10             4.50         6.90              693

Nike                       100                   1.08       2.8       21.70             1.60          5.80                17

Home Depot        172                   2.03      2.7        23.80            4.00         14.70             331

Marriott                  18                    1.74       2.5       23.60             2.80       18.10               n/a

Starbucks               83                   1.41       2.5         21.10             1.3            10.80             48

Sherwin-Will       27                   1.15        2.3          20.20           7.9          14.80              191

VISA                        187                 0.72      2.2         19.30             1.70         13.40              54

Southwest Air        27                0.71        2           17.90              2.20        8.90                31

JB Hunt Trans        9                   1.06        2         19.4                  2.2           5.10               75

Linking to dividend paying stocks, all the above stocks pay dividends which is a good thing because you never know what will happen, although you can expect things to happen. While you believe companies are doing the right thing, the economy will dictate. By starting with profitable companies, you can make money and focus on what part of their company you like best. Which metric is more important to the street – right down low interest rates companies can carry more debt; do they have enough debt? should the companies be considering something else? who has the highest free cash? There are many reasons for selecting a company however by starting with dividend paying companies there tends to be less risk and more reward for you.

There are more questions than answers, till the next time – to raising questions.