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Active at Passive Prices
Unbundling ETFs 2008
5 Stingy Stocks for 2008
5 Graham Stocks for 2008
Is your index too active?
Graham's Simple Way
Canadian Graham Stocks
5 Stingy Stocks for 2007
8 Graham Stocks for 2007
Top SPPs
The Simple Way
A hole in your IPO?
Monkey Business
8 Stingy Stocks for 2006
Graham Stock Gainers
Blue-Chip Blues
Are Dividends Safe?
SPPs for 2005
Graham's Simplest Way
Selling Graham Stocks
RRSP Money Market Funds
Stingy Stocks for 2005
High Performance Graham
Intelligent Indexing
Unbundling Canadian ETFs
A history of yield
A Dynamic Duo
Canadian Graham Stock
Dividends at Risk
Thrifty Value Stocks
Stocks in Short Supply
The New Dividend
Hunting Goodwill
SPPs for 2003
RRSP: don't panic
Desirable Dividends
Stingy Selections 2003
10 Graham Picks
Growth Eh?
Timing Disaster
Dangerous Diversification
The Coffee Can Portfolio
Down with the dogs
Stingy Selections
Frugal Funds
Graham Revisited
Just Spend It
Ticker Temptation
Stock Mortality
Focus on Fees
SPPs for the Long Term
Seeking Solid Stocks
Relative Strength
The VR Approach
The Irrational Investor
Value Investing
Eye on PI
MoneySense Articles
Income 2008
Small stocks, big profits
Cdn Top 200 2008
US Top 500 2008
Value that sizzles
So simple it works
Income 100
No assembly required
Investing by the book
Cdn Top 200 2007
US Top 500 2007
Invest like the masters
A simple way to get rich
Top Trusts 2006
Stocks for cannibals
Car bites dogs
Cdn Top 200 2006
US Top 1000 2006
So easy, so profitable
Top Trusts 2005
Dogs of the Dow
Top 200 2005
Money for nothing
Yield of dreams
Return of the master
Advisor's Edge Articles
Passive Rebundling
Doing the math
Norm Speaks
Southern Stars
The rise of the Canadian dollar has been good news for snowbirds and cross-border shoppers. It may be even better news, though, for cross-border investors. U.S. stocks are now on sale for 20% less, in loonies, than they were at this time last year.
To make it as easy as possible for you to pinpoint the best U.S. buys, we're happy to again present our Top 500 ranking of U.S. stocks. Just as in our Top 200 Canadian stocks, the Top 500 uses objective measures of financial virtue to uncover potential stars.
We start by selecting the 500 largest public companies in the U.S. based upon their net sales. We then evaluate each stock for its growth prospects and assign it a letter grade. The fastest growing stocks are awarded an A. The next group gets a B and so on, all the way down to F.
Growth is only half the equation, though. Next we consider a stock's value appeal and assign it a grade on that scale as well - the best bargains get an A; the most expensive stocks walk away with an F. The ideal, of course, is for a stock to get a double A rating, marking it as both an outstanding growth and value prospect, but that's rare. Only a single stock managed that feat this year, although 11 others managed to nab at least one A and a B.
Should you load up on these highest graded stocks? We wish we could say yes, but the reality is that any reasonable system of evaluating stock picks goes through up and down periods. Last year, we found five stocks that earned A's on both our value and growth scales. Our best performer was Parker Hannifin, a manufacturing firm that split its stock and rewarded us with a 43% gain. Unfortunately, two of our picks disappointed. Liz Claiborne, the clothing manufacturer, fell 35% and Old Republic, an insurance firm, posted a 33% loss. Taken as a group, our five double-A stocks lost 7%, not including dividends.
The losses show the importance of applying your own judgment to the results from the Top 500 U.S. Stocks - or, for that matter, from any stock screen. You should view the Top 500 as merely a starting point for your own research. We're confident that even if you don't use our methodology, you'll find that our tables contain a wealth of data about each stock that can help you zero in on the investments that are right for you. In fact, our tables contain so much information that we've moved our giant Top 500 U.S. Stock table to our website. We encourage you to visit MoneySense.ca and download the entire table - it's free. (See the bottom of the page for a link.)
To get a taste of what's available, consider the handful of stocks that earned at least one A and one B for their value and growth appeal. We've listed the twelve stocks that managed this feat in The Distinctive Dozen, above.
Some extraordinary qualities are needed to make this list. On the value front, all our chosen stocks pay a dividend and sell for modest price-to-sales and price-to-book-value ratios. On the growth side, they demonstrate strong increases in sales per share and earnings per-share. In addition, most generate healthy returns on equity, carry relatively little debt, and enjoy rising share prices. But keep in mind that these stocks are controversial. After all, strong growth is rarely to be had at rock-bottom prices without some risk.
CVS Caremark (NYSE:CVS) was the only stock to garner a double-A rating this year. The company's chain of drug stores has posted outstanding numbers. The company is the No. 1 provider of prescriptions in the U.S.
Archer-Daniels-Midland (NYSE:ADM), one of the world's biggest agricultural processors, was one of our top picks last year and remains on our list this year. It continues to show strong growth and is now an even better value than it was in 2006. Bargain hunters will salivate over its low price-to-earnings ratio.
Universal Health Services (NYSE:UHS), another carryover from last year, owns a string of hospitals and health care centres. Investors appear to be spooked by the heated debates over reform of the U.S. health care system and what those reforms might mean to U.S. health care providers. In response, they've driven down Universal's share price to the point where it's an even bigger bargain than it was last year.
ConocoPhillips (NYSE:COP) is a major oil and gas producer that will appeal to fans of Warren Buffett. His Berkshire Hathaway owns a large stake in Conoco. Provided oil prices remain high, ConocoPhillips should do well.
Two truck makers made our list. PACCAR (NYSE:PCAR) sells commercial trucks (think shipping) and Oshkosh (NYSE:OSK) produces specialty trucks for defence, concrete placement, and municipal services. Both firms have very strong growth characteristics with sales and earnings growth of more than 20% annually.
If you're looking for a winter getaway, you might consider investing in Royal Caribbean Cruises (NYSE:RCL). Shareholders not only get a good stock but can also obtain hundreds of dollars worth of free cruise credits.
Alternately, you can warm yourself with a dram of Dalmore single malt from Fortune Brands (NYSE:FO). The firm manages a plethora of alcohol, golf, and home product brands - and its 2% dividend yield will let you sample its products all winter long.
Two natural gas giants made our list. Chesapeake Energy (CHK) is the largest independent producer of natural gas in the U.S., while ONEOK (OKE) is one of the country's largest natural gas distributors. Both stocks show strong momentum and ONEOK was recently ranked by Fortune magazine as the most admired energy company in the U.S.
Two insurance firms round out The Distinctive Dozen. Cincinnati Financial (CINF) sells commercial insurance but it is also active in home and auto coverage. It yields a hefty 3.6%. Transatlantic Holdings (TRH) is an insurer's insurer - it provides reinsurance to other property and casualty insurance firms. We like the fact that the company has doubled its dividend over the last five years.
As always, remember that stock screens have their limitations. Check to make sure that the company's situation hasn't suddenly changed in some important way before you invest. Read the firm's latest press releases, regulatory filings, and scan newspaper stories to make sure that you're up to speed on all of the most recent developments. Then take your loonies and find yourself some U.S. bargains.
Download the full table of top US stocks for 2008 (a .xls file)
From the December/January 2008 issue
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