Ross Stores (ROST)
A Low-Volatility, High-Quality Stock
McKesson (MCK) distributes ethical and proprietary drugs, surgical supplies and health and beauty products throughout North America to the healthcare industry. The company also provides technical consulting services to biotech and pharmaceutical manufacturers.
McKesson has become more aggressive in pursuing acquisitions to boost sales and earnings growth. In February 2014, McKesson acquired Celesio, a German drug distributor, for $5.4 billion. Celesio provides services in the pharmaceutical and health care sector with operations in 14 countries. The deal will allow McKesson to expand in Europe and will add noticeable sales and earnings in 2015 and beyond.
Revenues for the year ended March 31, 2015 surged 30%, while EPS (earnings per share) advanced 33%. Growth was bolstered by the acquisition of Celesio, which accounted for a majority of the company's revenue growth. McKesson’s sales and earnings sparkled in the first quarter, which caused analysts to raise sales and earnings forecasts for the remainder of 2015.
I expect sales to rise 5% and EPS to climb 11% during the 12 months ending March 31, 2016. My estimates could be too conservative if Celesio delivers better than-expected results, or if McKesson purchases another company at an advantageous price. McKesson easily qualifies using the six S&P screening criteria shown above. Buy.
From Cabot Wealth Advisory 10/24/11
For this Cabot Wealth Advisory, I combined Warren Buffett's and Benjamin Graham's criteria for choosing stocks. I looked for stocks with:
1) Free cash flow more than $20 million--cash needs include dividends, operating expenses, capital improvements, and research.
2) Net profit margin more than 15%--a good indicator of growth sustainability.
3) Return on equity more than 15%--a barometer of future appreciation.
4) Discounted cash flow value higher than current price--Standard & Poor's is a good source to find discounted cash flow estimates.
5) Market capitalization more than $1 billion--small companies not allowed.
6) Standard & Poor's rating of B+ or better--indicates financial stability and steady growth of earnings and dividends.
7) Positive earnings growth during the past five years with no deficits--very important to adhere to.
8) Dividends currently paid--always important and helps your return, too.
I screened my Benjamin Graham Common Stock Database and found two high-quality companies that fit my criteria. Both companies are leaders in the retail store sector, and both have excellent future prospects.
Ross Stores (ROST) operates 1,091 stores in 27 states and Guam featuring apparel, shoes, jewelry and home furnishings. Ross is able to offer brand-name merchandise at 20% to 60% below department and specialty store prices by buying manufacturers' cancellations and overruns. The company keeps low in-store inventories to increase turnover and to reduce the need for discounts.
Consumers continue to seek Ross's low-priced products during the current economic malaise. The company will enter Arkansas and Illinois with an initial 15 new stores. These will jump-start Ross's presence and provide noticeable growth in the near future. We forecast sales and earnings growth of 12% during the next 12 months. The current dividend is meager but provides a 1.0% yield that will continue to grow.
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J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
|Ross Stores (ROST)
4440 Rosewood Drive
Pleasanton, California 94588-3050
|Index Membership: Nasdaq 100
Industry: Apparel Stores
Full Time Employees: 14,000
10/24/11 Ross Stores (ROST): Earnings growth of 12% during the next 12 months