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Feb. 28, 2017, 7:47 a.m. EST

20 stocks that will help you sleep at night

Worried about sky-high stock prices? These companies are built on a solid foundation and may be worth holding for many years

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By Philip van Doorn, MarketWatch


Sergio Flores/Bloomberg
AutoZone has had a high average return on invested capital over the past five years, and the company’s stock trades lower to expected earnings than the S&P 500 Index does, making it attractive to long-term investors.

With U.S. stocks at record highs, investors are fretting whether this nearly eight-year-old bull market has much life left in it.

Because the future can’t be predicted, maybe it’s best not to think about it.

Thus, we have compiled a list of stocks that have turned out to be long-term winners — and may continue to be. We did a similar article in November 2015.

We compared companies’ long-term returns on invested capital (ROIC) and saw a correlation with long-term outperformance for their stocks. According to FactSet, a company’s ROIC is its earnings divided by the sum of the carrying value of its common stock, preferred stock, long-term debt and capitalized lease obligations.

But “the investor of today does not profit from yesterday’s growth,” according to Berkshire Hathaway /quotes/zigman/583979/delayed BRK.B +0.25%  CEO Warren Buffett. So we have to look ahead as well.

Also see : This little-noticed phenomenon could make stock picking great again

To come up with a filtered list of S&P 500 /quotes/zigman/3870025/realtime SPX -0.32%  companies with the highest average ROIC, we added some measures of shorter-term performance and also looked ahead. The companies making the list had to show increases in sales per share over the past 12 months and for the past quarter, and analysts’ consensus estimates had to predict increases in sales and earnings in 2017 and 2018.

Here are the 20 S&P 500 companies meeting the above criteria that have had the highest returns on invested capital over the past five years, according to FactSet:

Company Ticker Industry ROIC - 5 years through most recent reported quarter, through Feb. 10 Total return - 5 years through Feb. 10
VeriSign Inc. /quotes/zigman/66318/composite VRSN Internet Software/ Services 311.3% 127%
Accenture PLC Class A /quotes/zigman/565535/composite ACN Information Technology Services 59.8% 131%
Marriott International Inc. Class A /quotes/zigman/23609459/composite MAR   Hotels/ Resorts/ Cruiselines 57.9% 159%
AutoZone Inc. /quotes/zigman/218657/composite AZO Specialty Stores 48.6% 109%
Mastercard Inc. Class A /quotes/zigman/390906/composite MA Finance/ Rental/ Leasing 43.1% 179%
Moody’s Corp. /quotes/zigman/267181/composite MCO Financial Publishing/ Services 40.5% 202%
TJX Cos. /quotes/zigman/243683/composite TJX Apparel/ Footwear Retail 40.3% 138%
Ross Stores Inc. /quotes/zigman/77604/composite ROST Apparel/ Footwear Retail 40.1% 178%
Paychex Inc. /quotes/zigman/76829/composite PAYX Data Processing Services 36.8% 122%
Lockheed Martin Corp. /quotes/zigman/150087/composite LMT Aerospace & Defense 32.8% 256%
Idexx laboratories Inc. /quotes/zigman/73621/composite IDXX Medical Specialties 32.5% 231%
Linear Technology Corp. Semiconductors 32.0% 116%
Coach Inc. /quotes/zigman/263421/composite COH Apparel/ Footwear Retail 31.9% -41%
S&P Global Inc. /quotes/zigman/69787784/composite SPGI Financial Publishing/ Services 30.6% 215%
Clorox Co. /quotes/zigman/222530/composite CLX Househould/ Personal Care 30.2% 117%
Sherwin-Williams Co. /quotes/zigman/240736/composite SHW Industrial Specialties 30.2% 230%
Altria Group Inc. /quotes/zigman/294903/composite MO Tobacco 29.8% 212%
Tractor Supply Co. /quotes/zigman/56321/composite TSCO Specialty Stores 27.4% 87%
Priceline Group Inc. /quotes/zigman/90481/composite PCLN Other Consumer Services 27.4% 202%
Mettler-Toledo International Inc. /quotes/zigman/207448/composite MTD Misc. Manufacturing 26.3% 157%
Source: FactSet

One remarkable thing about this list is that 18 of the 20 companies have beaten the index’s five-year total return of 92%.

Here’s how these companies have grown their sales per share for the most recent reported quarter and 12-month period:

Company Sales per share - most recent reported quarter through Feb. 10 Sales per share - year-earlier quarter Growth of quarterly sales per share Sales per share - past 12 reported months through Feb. 10 Sales per share - year-earlier 12-month period Growth of sales per share
VeriSign Inc. $2.28 $2.04 12% $8.87 $7.96 11%
Accenture PLC Class A $13.57 $12.61 8% $53.07 $48.88 9%
Marriott International Inc. Class A $14.57 $13.39 9% $58.39 $51.37 14%
AutoZone Inc. $83.08 $76.63 8% $355.60 $324.25 10%
Mastercard Inc. Class A $2.53 $2.23 13% $9.80 $8.50 15%
Moody’s Corp. $4.72 $4.12 14% $17.91 $16.98 6%
TJX Cos. $12.53 $11.39 10% $48.89 $44.19 11%
Ross Stores Inc. $7.85 $6.88 14% $31.72 $28.64 11%
Paychex Inc. $2.13 $1.99 7% $8.44 $7.82 8%
Lockheed Martin Corp. $46.59 $41.64 12% $164.89 $146.70 12%
Idexx laboratories Inc. $4.89 $4.35 12% $19.54 $17.12 14%
Linear Technology Corp. $1.53 $1.42 8% $6.05 $5.88 3%
Coach Inc. $4.69 $4.58 3% $16.17 $15.23 6%
S&P Global Inc. $5.35 $5.05 6% $21.35 $19.35 10%
Clorox Co. $10.75 $10.22 5% $44.67 $43.09 4%
Sherwin-Williams Co. $29.43 $27.95 5% $125.56 $120.66 4%
Altria Group Inc. $2.43 $2.42 1% $9.91 $9.62 3%
Tractor Supply Co. $14.53 $12.15 20% $50.69 $45.51 11%
Priceline Group Inc. $73.85 $60.69 22% $207.44 $174.50 19%
Mettler-Toledo International Inc. $26.65 $24.27 10% $92.94 $84.83 10%
Source: FactSet

And here’s how analysts expect earnings per share to increase for these companies this year and in 2018:

Company Actual or estimated EPS - 2016 Estimated EPS - 2017 Estimated EPS - 2018 Expected EPS growth - 2017 Expected EPS growth - 2018
VeriSign Inc. $3.61 $3.86 $4.21 7% 9%
Accenture PLC Class A $5.34 $5.87 $6.40 10% 9%
Marriott International Inc. Class A $3.62 $4.04 $4.69 12% 16%
AutoZone Inc. $40.70 $45.54 $50.52 12% 11%
Mastercard Inc. Class A $3.77 $4.26 $4.96 13% 17%
Moody’s Corp. $4.71 $5.07 $5.61 8% 11%
TJX Cos. $3.51 $3.79 $4.17 8% 10%
Ross Stores Inc. $2.82 $3.14 $3.48 11% 11%
Paychex Inc. $2.22 $2.40 $2.61 8% 8%
Lockheed Martin Corp. $12.38 $12.63 $14.07 2% 11%
Idexx laboratories Inc. $2.44 $2.94 $3.39 20% 15%
Linear Technology Corp. $2.02 $2.10 $2.33 4% 11%
Coach Inc. $1.98 $2.14 $2.37 8% 11%
S&P Global Inc. $5.35 $5.99 $6.66 12% 11%
Clorox Co. $4.92 $5.32 $5.72 8% 8%
Sherwin-Williams Co. $12.45 $13.88 $15.47 11% 11%
Altria Group Inc. $3.03 $3.30 $3.57 9% 8%
Tractor Supply Co. $3.27 $3.50 $3.94 7% 12%
Priceline Group Inc. $64.34 $73.55 $84.68 14% 15%
Mettler-Toledo International Inc. $14.80 $16.68 $18.60 13% 11%
Source: FactSet

Here’s a summary of analyst ratings for the group, as well as forward price-to-earnings ratios, based on consensus earnings estimates for 2017 and 2018:

Company Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Price/consensus 2017 EPS estimate Price/consensus 2018 EPS estimate
VeriSign Inc. 0% 71% 29% 21.5 19.8
Accenture PLC Class A 55% 45% 0% 20.0 18.4
Marriott International Inc. Class A 56% 44% 0% 21.4 18.4
AutoZone Inc. 61% 39% 0% 16.3 14.7
Mastercard Inc. Class A 80% 17% 3% 25.2 21.6
Moody’s Corp. 20% 80% 0% 21.3 19.2
TJX Cos. 80% 20% 0% 20.3 18.5
Ross Stores Inc. 64% 36% 0% 21.9 19.7
Paychex Inc. 14% 59% 27% 24.3 22.4
Lockheed Martin Corp. 48% 52% 0% 20.6 18.5
Idexx laboratories Inc. 36% 37% 27% 48.3 41.9
Linear Technology Corp. 0% 94% 6% 30.3 27.2
Coach Inc. 57% 40% 3% 17.8 16.1
S&P Global Inc. 75% 25% 0% 21.1 19.0
Clorox Co. 16% 74% 10% 23.9 22.2
Sherwin-Williams Co. 55% 40% 5% 22.1 19.8
Altria Group Inc. 50% 50% 0% 21.9 20.3
Tractor Supply Co. 50% 50% 0% 21.2 18.9
Priceline Group Inc. 80% 20% 0% 22.4 19.4
Mettler-Toledo International Inc. 7% 86% 7% 27.9 25.0
Source: FactSet

In comparison, the S&P 500 trades for 17.8 times aggregate 2017 EPS estimates and for 15.9 times the 2018 aggregate, according to FactSet. The only company on the list trading below either of those P/E ratios is AutoZone Inc. /quotes/zigman/218657/composite AZO +1.52% .

Then again, companies that consistently bring home strong returns on invested capital don’t come cheap. Buffett had good reason to say: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

The ratings of sell-side analysts are based on 12-month price targets. Maybe people consider a 12-month commitment to be “long-term investing.” But it’s not. Solid returns can take years to accumulate.

So here you have a list that includes some great companies. Most of the stocks aren’t cheap, but they may well pan out over the next several years. This is where your own research in a company’s business strategy comes into play.

Do you think the company will remain competitive in its market for the next 10 or 20 years? That’s the key question.

/quotes/zigman/583979/delayed
US : U.S.: NYSE
$ 183.47
+0.46 +0.25%
Volume: 1.80M
Sept. 20, 2017 2:11p
P/E Ratio
20.75
Dividend Yield
N/A
Market Cap
$451.61 billion
Rev. per Employee
$645,986
loading...
/quotes/zigman/3870025/realtime
US : S&P Base CME
2,498.59
-8.06 -0.32%
Volume: 1.17B
Sept. 20, 2017 2:27p
loading...
/quotes/zigman/66318/composite
US : U.S.: Nasdaq
$ 104.97
-0.44 -0.42%
Volume: 241,592
Sept. 20, 2017 2:26p
P/E Ratio
28.76
Dividend Yield
N/A
Market Cap
$10.53 billion
Rev. per Employee
$1.16M
loading...
/quotes/zigman/565535/composite
US : U.S.: NYSE
$ 137.22
+0.51 +0.37%
Volume: 1.05M
Sept. 20, 2017 2:27p
P/E Ratio
24.40
Dividend Yield
1.76%
Market Cap
$90.52 billion
Rev. per Employee
$93,985
loading...
/quotes/zigman/23609459/composite
US : U.S.: Nasdaq
$ 107.66
+0.31 +0.29%
Volume: 2.03M
Sept. 20, 2017 2:26p
P/E Ratio
37.12
Dividend Yield
1.23%
Market Cap
$39.98 billion
Rev. per Employee
$91,629
loading...
/quotes/zigman/218657/composite
US : U.S.: NYSE
$ 543.30
+8.11 +1.52%
Volume: 430,962
Sept. 20, 2017 2:27p
P/E Ratio
12.34
Dividend Yield
N/A
Market Cap
$15.00 billion
Rev. per Employee
$129,627
loading...
/quotes/zigman/390906/composite
US : U.S.: NYSE
$ 141.85
-0.64 -0.45%
Volume: 1.39M
Sept. 20, 2017 2:27p
P/E Ratio
35.33
Dividend Yield
0.62%
Market Cap
$151.78 billion
Rev. per Employee
$959,916
loading...
/quotes/zigman/267181/composite
US : U.S.: NYSE
$ 135.79
-0.95 -0.69%
Volume: 309,322
Sept. 20, 2017 2:27p
P/E Ratio
55.64
Dividend Yield
1.11%
Market Cap
$26.12 billion
Rev. per Employee
$361,783
loading...
/quotes/zigman/243683/composite
US : U.S.: NYSE
$ 71.99
-0.84 -1.15%
Volume: 2.24M
Sept. 20, 2017 2:27p
P/E Ratio
20.43
Dividend Yield
1.73%
Market Cap
$46.34 billion
Rev. per Employee
$144,260
loading...
/quotes/zigman/77604/composite
US : U.S.: Nasdaq
$ 60.75
-0.40 -0.65%
Volume: 1.04M
Sept. 20, 2017 2:27p
P/E Ratio
20.11
Dividend Yield
1.05%
Market Cap
$23.58 billion
Rev. per Employee
$169,655
loading...
/quotes/zigman/76829/composite
US : U.S.: Nasdaq
$ 58.23
+0.16 +0.28%
Volume: 757,341
Sept. 20, 2017 2:27p
P/E Ratio
25.86
Dividend Yield
3.42%
Market Cap
$20.83 billion
Rev. per Employee
$230,022
loading...
/quotes/zigman/150087/composite
US : U.S.: NYSE
$ 306.81
+1.16 +0.38%
Volume: 627,304
Sept. 20, 2017 2:26p
P/E Ratio
23.63
Dividend Yield
2.37%
Market Cap
$88.02 billion
Rev. per Employee
$505,619
loading...
/quotes/zigman/73621/composite
US : U.S.: Nasdaq
$ 158.21
-2.32 -1.45%
Volume: 143,137
Sept. 20, 2017 2:26p
P/E Ratio
54.31
Dividend Yield
N/A
Market Cap
$14.01 billion
Rev. per Employee
$252,134
loading...
/quotes/zigman/263421/composite
US : U.S.: NYSE
$ 39.43
-0.92 -2.28%
Volume: 2.34M
Sept. 20, 2017 2:27p
P/E Ratio
18.96
Dividend Yield
3.41%
Market Cap
$11.40 billion
Rev. per Employee
$311,688
loading...
/quotes/zigman/69787784/composite
US : U.S.: NYSE
$ 155.54
-0.07 -0.04%
Volume: 219,649
Sept. 20, 2017 2:27p
P/E Ratio
18.21
Dividend Yield
1.05%
Market Cap
$39.99 billion
Rev. per Employee
$290,000
loading...
/quotes/zigman/222530/composite
US : U.S.: NYSE
$ 135.42
-2.10 -1.53%
Volume: 287,145
Sept. 20, 2017 2:26p
P/E Ratio
25.47
Dividend Yield
2.48%
Market Cap
$17.75 billion
Rev. per Employee
$737,407
loading...
/quotes/zigman/240736/composite
US : U.S.: NYSE
$ 344.81
+2.07 +0.60%
Volume: 251,447
Sept. 20, 2017 2:26p
P/E Ratio
28.47
Dividend Yield
0.99%
Market Cap
$32.02 billion
Rev. per Employee
$295,165
loading...
/quotes/zigman/294903/composite
US : U.S.: NYSE
$ 61.18
-1.06 -1.70%
Volume: 2.79M
Sept. 20, 2017 2:27p
P/E Ratio
8.11
Dividend Yield
4.29%
Market Cap
$119.39 billion
Rev. per Employee
$2.36M
loading...
/quotes/zigman/56321/composite
US : U.S.: Nasdaq
$ 60.39
-0.86 -1.40%
Volume: 1.04M
Sept. 20, 2017 2:26p
P/E Ratio
18.23
Dividend Yield
1.78%
Market Cap
$7.76 billion
Rev. per Employee
$270,811
loading...
/quotes/zigman/90481/composite
US : U.S.: Nasdaq
$ 1,853.78
-6.00 -0.32%
Volume: 148,152
Sept. 20, 2017 2:27p
P/E Ratio
39.60
Dividend Yield
N/A
Market Cap
$91.24 billion
Rev. per Employee
$620,700
loading...
/quotes/zigman/207448/composite
US : U.S.: NYSE
$ 630.24
-2.03 -0.32%
Volume: 61,883
Sept. 20, 2017 2:24p
P/E Ratio
38.83
Dividend Yield
N/A
Market Cap
$16.23 billion
Rev. per Employee
$183,699
loading...
/quotes/zigman/218657/composite
US : U.S.: NYSE
$ 543.30
+8.11 +1.52%
Volume: 430,962
Sept. 20, 2017 2:27p
P/E Ratio
12.34
Dividend Yield
N/A
Market Cap
$15.00 billion
Rev. per Employee
$129,627
loading...

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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