Saturday, July 04, 2009

Competive Edge Stocks

One source of a wide variety of stock screens is the American Association of Individual Investors website. Access to the screens does require a membership in the organization.

From time to time the AAII Journal will feature screens the editor believes might be of interest to its readership. In the July issue of the AAII Journal, the featured screen focuses on: Stocks With a Competitive Edge. According to the article, the thinking behind this featured screen is:
"Earnings are dependent on the ability of a company to convert sales into profits. Converting a large and growing proportion of sales into earnings often points to firms that have a competitive advantage, due to brand-name loyalty, a limited niche, or even patent protection. The First Cut this issue screens for companies turning a larger percentage of sales into gross profits, operating profits and net profits."
Highlights of the screening criteria are:
  • Gross profit margin: calculated by dividing gross income (sales less the cost of goods sold) by sales. It reflects the firm’s basic pricing decisions and its material costs.
  • Operating profit margin: calculated by dividing operating income by sales. Operating income represents income generated after all costs except interest, taxes, and non-operating items. The operating margin reflects the relationship between sales and management-controlled costs (the cost of goods sold, as well as operating costs including selling, administrative and general expenses; research and development expenses; and depreciation).
  • Net profit margin: calculated by dividing net income by sales. It indicates how well management has been able to turn sales into earnings available for shareholders.
The 30 companies passing the First Cut are domestic exchanged-listed companies with positive sales growth coupled with gross, operating and net margins above their five-year averages and also showing improvement over the previous year. A partial list of the firms with the highest annual growth in sales over the last five years are noted below.


Stocks With a Competitive Edge ($)
AAII Journal
By: John Bajkowski
July 2009

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