With the end of the month approaching I thought I’d take a look at the BWB7 screen and get some candidates for further research in August.
The criteria are as follows:
1. Adequate Size I look at companies that have annual revenue larger than 100M preferably for the majority of the past ten years. This keeps us out of micro cap territory, but exposes us companies with growth potential.
2. A Sufficiently Strong Financial Condition Current ratio greater than 2
3. Earnings Stability Some positive EPS earnings in the past ten years.
4. Dividend Record Dividend payout for at least ten years is stellar, but not mandatory. A dividend is required though.
5. Earnings Growth EPS has grown at least 33% over the last ten-year period.
6. Moderate Price to Earnings Ratio P/E ratio using the last three years avg EPS.
7. Moderate Ratio of Price to Assets Price/Book ratio less than 1.5
What Does this Screen Tell Us?
On the surface this looks like a basic value screen, but digging deeper shows us some things.
The earnings stability requirement is the first bottleneck. This eliminates any negative earners over the past ten years. With the bad year everybody had in 2008/2009 this really drops out companies that could not stand up to the recession.
Earnings growth is one that surprises me from time to time. 33% over ten years sounds pretty easy (a CAGR of 2.89%) but it still knocks a few out. We want companies with steady growth; if it can’t grow at least 3% a year is it really that good.
P/E ratio less than 15 is a value stalwart. But we add the twist of using the average of the last three years earning instead of the TTM data. The average data makes this a little tighter (usually my P/E ratios run higher than the TTM).
Based on current price levels some of these companies may be out of the P/E ratio requirement (using the last three years average EPS.) but having the analysis done will allow for a decisive move when price levels decline.
Finally, the dividend record drops off the companies without sufficient cash and financial stability to pay shareholders on a consistent basis, or perform share buybacks.
And the Winners are…
Alamo Group, Inc. (ALG) is engaged in the design, manufacture, distribution and service of equipment for right-of-way maintenance and agriculture.
Allete, Inc. (ALE) is an energy company. Minnkota Power Cooperative, Inc. (Minnesota Power) is an operating division of the Company.
Cash America International, Inc. (CSH) provides specialty financial services to individuals through retail services locations and through electronic distribution platforms known as e-commerce activities. The Company offers secured non-recourse loans, commonly referred to as pawn loans.
Chase Corp. (CCF) through its subsidiaries is a global manufacturer of tapes, laminates, sealants, and coatings for high reliability applications.
Communication Systems, Inc. (JCS) is engaged through its Suttle and Austin Taylor business units in the manufacture and sale of modular connecting and wiring devices for voice and data communications, digital subscriber line filters, and structured wiring systems and through its Transition Networks business unit in the manufacture and sale of media and rate conversion products for telecommunications networks.
Curtiss-Wright Corp. (CW) is a diversified, multinational provider of engineered, technologically advanced products and services.
Fred’s, Inc. (FRED) is engaged in the sale of general merchandise through its retail discount stores and full-service pharmacies.
Friedman Industries, Incorporated (FRD) is engaged in steel processing, pipe manufacturing and processing, and steel and pipe distribution.
Goldcorp Inc. (GG) is a gold producer engaged in the operation, exploration, development and acquisition of precious metal properties in Canada, the United States, Mexico and Central and South America.
Helmerich & Payne Inc. (HP) is engaged in contract drilling of oil and gas wells for others.
Jinpan International Ltd. (JST) is engaged in the design and manufacture of cast resin transformers, switchgears, unit substations, reactors and other wind energy products.
Superior Uniform Group Inc. (SGC) manufactures and sells a range of uniforms, corporate identity apparel, career apparel and accessories.
Teleflex Incorporated (TFX) is a global provider of medical technology products. The Company develops, manufactures and supplies single-use medical devices used to provide access to the body for common diagnostic and therapeutic procedures in critical care and surgery.
UniFirst Corp. (UNF) is a provider of workplace uniforms and protective work wear clothing in the United States.
Universal Corporation (UVV) is a global leaf tobacco supplier. Universal is a holding company that operates through a number of directly and indirectly owned subsidiaries.
Vale S.A. (VALE) is a Brazil-based metals and mining company.
A further winnowing based on the above company descriptions from MSN Money, reveals that some of these companies are out of my circle of competence and comfort level for investment (JCS,CW,GG,HP,UVV and VALE).
Also, Jinpan International already holds a position in my portfolio and the analysis can be seen here.
I will be spending time over the month reviewing the remaining companies and developing an investment thesis for each, along with fair price estimates.