Do one really knows how the stock market will do, but looking back they can come up with great ideas. One idea is examine highly profitable companies with a low beta which then suggests the pattern will continue. In late June, Tiffana Paulrajah of Innovest Inc did that and came up with the following chart:

The criteria she used was:

Stocks in the S&P 500 with a minimum capitalization of $1 billion.

Positive change in economic value added (EVA) over 12 months. EVA measures the momentum of the wealth creating ability of the company and is the net operating profit after tax (NOPAT) minus capital charge (cost of capital times the amount of invested capital)

Positive sales change over 12 months

Positive change in net operating profit over 12 months

Minimum value of free cash flow to capital of 5%. This number will give a sense of how well the company utilizes its invested capital to generate free cash flow to pay debt or increase or maintain dividends

Beta of less than one. Searching for companies that move less than the market

A price to earnings ratio of 25

The above narrow the field from 500 to 11 companies

Company      Mkt Cap   EVA  Cost of Cap 12M Sales FCF    P/E    EPI  Beta

$ Bil                          %               Chg %       /Cap

Boeing         209.081     5190.8    10.7           3.1             9.9       23.1   1.5    1.40

Comcast       156.428   18,313        8.7          5.82            5.40      6.8   1.4    1.17

Lowe’s            81.526      2,020       9.9          3.72            9.6       21.6   1.4    1.31

LyondellBas  45.376      4,921        9.0         16.14          10.7     8.6    2.7     1.08

DXC Tech        23.932     2,777.4    7.9        222.81          30.7    13.6   1         0.92

Starbucks        78,949     2,202.7    7.6           6.79             6.5    18.5   2.4     0.63

Broadcom      117.884    15,632     8.6          20.86          11.9    10.1   2.8     0.91

Applied Mat     49.707      1,377    12.0         27.37          15.1    16.4   1.6     1.62

Sherwin-Wil     37.636      1,674     9.1         34.41             6.5    20.5   2.3     1.17

Ross Stores         32.059        981.4   9.9         10.19          17.10   22    2.3     1.08

Parker-Hannfin  22.725       141.6  10.1        21.68            5.3     22.7   1     1.42

Lam Research     29.277       805.6   11.2       42.67           17.0   15.4    1.3   1.42

O’Reilly Auto        23.276      883.9   9.8           5.21           20.0    20.8    2.6    0.94

Fiserv                     31.437     1.124    8.4           3.13           11.0    22.8    2.0   0.81

Snap-On                9.121         185.4  9.8         6.98             7.4   15.9     1.3   1.36

Acuity Brands       4.981        141.1   11.5      2.66             13.70  15.1   1.3   1.44

Linking to dividend paying stocks, with the stock market there are many choices and you need to narrow your choices. The charts help decide what is important to lessen risks. Whether you pick one of the above companies is not the issue. The issue is how do you narrow the field to pick the best companies for you, besides one that makes money. Take your time and come up with comparable choices and you may ask why would sales be similar this year? what was special about last year – if it is consistent then the choices are easier because they are all the right ones.

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