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U.S. companies that make the grade


Allan Robinson, April 23, 2009 at 7:28 PM EDT
The Globe and Mail


WHAT WE ARE LOOKING FOR

It looks like stocks are climbing out of the depths, and although stock portfolios look terrible, the odds have swung to the advantage of equity investors, says quantitative equity analyst James O'Shaughnessy, author of What Works on Wall Street.

“The numbers are suggesting that the next 10 years will be marvellous for equity investors of all stripes,” he said. Stock markets tend to revert to their mean and that suggests a huge upswing after the S&P 500 posted its worst 10-year performance since 1928.

During the 40-year period ended February, 2009, equities have generated a real rate of return of only 3.86 per cent. To put that performance in perspective, 99.45 per cent of 40-year periods enjoyed a return of between 4 and 12 per cent a year. The long-term average is a return of 7 per cent.

This week we have been running a series of screens using a stock selection system to find undervalued companies employed by Mr. O'Shaughnessy and his company, O'Shaughnessy Asset Management LLC, which manages the RBC O'Shaughnessy family of mutual funds.

Today's screen, the last in the series, looks at the U.S. common share market. The cornerstone of the process is to look for stocks with low price-to-sales ratios (PSR). Using that as a base, we build in recent stock market performance as a factor.

MORE ABOUT TODAY'S SCREEN

The selected stocks chosen today must have a PSR of less than 1.5. In addition, their profit must have grown over the past year and the change in their share price over three months and six months must have been above average for all U.S. stocks in the database.
The stocks that fit all of those criteria are then ranked according to their price change over the past 12 months.

The database consists of all U.S. securities covered by Compustat North America. For purposes of today's table, the companies must trade at a share price of more than $1 (U.S.) and they are excluded if their market capitalization is less than $200-million. Also excluded are all investment trusts, mutual funds and limited partnerships.

WHAT WE FOUND

The companies making the grade are all up dramatically from their 52-week lows and fast-approaching their highs. Some of the better-known names include Family Dollar Stores Inc., Jos. A. Bank Clothiers Inc. and Panera Bread Co.

Following table continues to the right of the page.


Cornerstone Growth - U.S.
Published April 24, 2009
US$-mil US$-mil US$-mil
US$ US$ US$ % Revenue Revenue Revenue 1-mo % YTD % 1-yr %
Price 52-wk 52-wk Div. Most rec. Most rec. Most rec. Price Price Price
Ticker Company Name Rank Apr. 17 high low Yield FYE  LTM  Qtr. P/S chg chg chg
AIPC-Q American Italian Pasta 1 31.80 35.73 6.05 0.0 569 629 171 1.0 0.5 42.3 400.8
HOTT-Q Hot Topic Inc. 2 12.99 13.00 4.57 0.0 761 761 238 0.7 37.2 40.1 178.2
FRPT-Q Force Protection Inc. 3 7.97 8.10 1.70 0.0 1,326 1,326 239 0.4 52.7 33.3 166.6
CENTA-Q Central Garden & Pet Co. 4 8.92 9.04 2.01 0.0 1,705 1,684 293 0.4 17.2 51.2 125.3
PTRY-Q Pantry Inc. 5 21.97 23.50 8.81 0.0 8,089 7,753 1,411 0.1 33.8 2.4 104.2
HGG-N HHGregg Inc. 6 17.95 18.25 3.57 0.0 1,257 1,356 416 0.4 53.6 106.8 71.8
FDO-N Family Dollar Stores Inc. 7 32.82 35.00 18.43 1.6 6,984 7,214 1,992 0.6 4.1 26.4 70.6
SF-N Stifel Financial Corp. 8 49.31 60.61 28.87 0.0 885 885 229 1.3 41.5 7.5 65.1
MNRO-Q Monro Muffler Brake Inc. 9 26.88 29.40 14.85 0.9 439 466 119 1.1 6.7 5.7 61.2
MTZ-N MasTec Inc. 10 13.00 15.74 5.55 0.0 1,379 1,379 414 0.6 11.6 12.3 61.7
COMS-Q 3Com Corp. 11 3.78 3.79 1.43 0.0 1,295 1,343 325 1.1 42.6 65.8 64.3
JOSB-Q Jos. A. Bank Clothiers  12 39.80 41.71 15.38 0.0 604 656 149 1.1 48.3 52.2 55.5
PNRA-Q Panera Bread Co. 13 59.86 65.00 34.22 0.0 1,299 1,299 358 1.4 16.7 14.6 42.2
IXYS-Q IXYS Corp. 14 9.78 13.84 4.58 0.0 304 295 58 1.0 22.7 18.4 41.3
VLGEA-Q Village Super Market Inc. 15 32.14 33.06 18.51 2.5 1,128 1,175 313 0.4 10.6 12.7 36.3
AAN-N Aaron's Inc. 16 30.02 30.49 15.11 0.2 1,584 1,584 405 1.0 20.1 12.9 33.9
CRI-N Carter's Inc. 17 21.62 22.35 11.94 0.0 1,524 1,524 431 0.8 13.7 12.3 35.1
FRED-Q Fred's Inc. 18 13.23 15.91 8.22 0.6 1,781 1,799 469 0.3 20.5 23.2 33.8
CTR-N Cato Corp.  19 19.16 20.00 11.30 3.4 858 858 212 0.6 15.2 28.5 31.1
WIRE-Q Encore Wire Corp. 20 23.77 25.22 13.49 0.3 1,081 1,081 180 0.5 27.1 25.5 22.3
AAP-N Advance Auto Parts Inc. 21 43.34 45.52 24.03 0.6 5,142 5,142 1,192 0.8 9.8 29.0 27.0
HIBB-Q Hibbett Sports Inc. 22 20.40 25.75 10.06 0.0 564 564 148 1.0 13.3 29.9 27.5
CTRN-Q Citi Trends Inc. 23 22.27 28.12 7.01 0.0 438 488 147 0.6 53.7 51.3 20.4
STST-Q ARGON ST Inc. 24 21.17 27.78 15.00 0.0 341 351 84 1.3 9.6 12.2 25.2
MRTN-Q Marten Transport Ltd. 25 19.34 22.59 14.71 0.0 607 607 140 0.7 7.3 2.0 23.4
Source: O'Shaughnessy Asset Management