Dividends and Seeking defensive US health care and consumer staples stocks

When markets go up, it is easy to invest for it seems everything you buy goes up, when the market goes down, then you worry about the first rule of investing try not to lose money. What should you buy? Who expect the US China war to increase? Who expected the President to threaten Mexico just as he was going to sign the USMC trade deal? Who else is the President going to impose tariffs on? We will see how all this plays out, in the meantime what are some great names in health care and consumer staples?

Noor Hussain of Inovestor Inc examines EVA (economic added value) approach which helps narrow the list for investors. His criteria are:

  1. Market cap of company greater than $10 billion
  2. A positive 12 month EVA. EVA is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses
  3. A positive 12 month change in the EPI (Economic Performance Index) and a current EPI greater than 1 – this is the return of capital to cost of capital
  4. A future growth value to market value ratio (FGV/MV) between 40% and -70%. The ratio represents what money the company should make in the future compared to the actual amount it is making.
  5. Free cash flow to capital ratio. This ratio helps answer how efficient the company converts its invested capital to free cash flow? Looking for a positive ratio and more than 5% is excellent.

Company                       Mkt Cap  EVA 12M  EPI   FGV/       FCF/        EPI 12M  Div     1 Yr

$ bil          Chg %                 MV %     Cap%     Chg %     Yield   Return

Constellation Brands   33.319      208.7       3.3      -34.3       6.9            57              1.7    -20.9

HCA Healthcare            41.493      235.1       2.4       -27.8      5.4            39.5            1.3    17.3

AbbVie                           113.395      130.5       2.4        5.9      11.3            96.4           5.6    -22.5

Hormel Foods                  21.146       32.7       2.4       23.3       6.1             12.5          2.1      10.0

Sysco                                  35.362        71.7     2.3        30.4      6.9              30.7           2.3       5.8

Bristol Myers Squibb       74.225      449.6   2.2           8.9     7.3             121.6           3.6     -13.8

Johnson & Johnson          348.286     359.3   2.0         14.6     4.9            107.7           2.9        9.6

Proctor & Gamble             258.132       53.3   1.8        37.2      4.3              22.0            2.9     40.6

Stryker                                   68.497     286.1   1.8        32.2      4.2             61.7            1.1      5.3

Amgen                                102.420.5    387.5  1.6         18.1      8.2             93.3           3.5      -7.2

The other companies on the list were Gilead Science, Celgene and Walgreen Boots Alliance.

Linking to dividend paying stocks, these lists help you narrow the list and at least start with some solid companies. Sometimes the price seems high, but with many of the companies you have to thing long term holdings. If you buy them for the quality of the cash flow, then over time you need to ensure the cash flow stays above your criteria. The lists helps answer if the price declines, what do I do? when should I sell? If you own Celgene which will be bought by Bristol Myers what do you do with the cash?

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

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