We’re pleased to present the thirteenth annual U.S. All Star stock report, where MoneySense combs through the Top 500 large blue chip stocks in the U.S. for the best prospects.
The U.S. All Stock report contains a wealth of information on the largest firms south of the border. It also condenses the investment prospects for each firm down into an easy-to-understand letter grade. As with our Canadian All Star report, the only way stocks can make it on the list is to score at least an A or a B as measured by both value and growth metrics. So get ready, and we will reveal our portfolio for the coming year.
The U.S. All Stars have been on a roll since the crash of 2008. They surged 16.6% per year, on average, over the last nine years while the market (as represented by the SPDR S&P 500 exchange traded fund) gained 10.9% annually. Over the last five years the All Stars advanced by an average of 16.3% per year and beat the market which climbed 12.6% per year.
Unfortunately, the All-Stars suffered from a difficult period leading up to the 2008 crash, so be aware of that when tracking returns. If you had purchased an equal dollar amount of the All Stars in 2005 and rolled your portfolio into the new list of All Stars each year thereafter, you’d have gained an average of 6.3% per year over the last 12 years. By way of comparison, the market gained 6.5% per year over the same period.
But last year’s results were pretty good. The U.S. All Star stocks gained an average of 22.2% since the last time and beat the market, which gained 19.7%. (The returns mentioned above do not include dividends and are presented in U.S. dollar terms.)
While our experience illustrates the impact that can be caused by encountering a rough patch early on, we think the U.S. All Star strategy is worth sticking to. We’ve also been encouraged by its performance in recent years.
The U.S. All Star stock report focuses on the largest 500 stocks in the U.S. (as measured by revenue) using data from Bloomberg. We start by evaluating each stock for its value potential and then for its growth appeal. Those at the top of the class are awarded As, solid candidates get Bs or Cs. Stocks in need of improvement get Ds or Fs. Stocks with good grades are deemed to be worthy of consideration while the laggards should be treated with caution.
To get top marks each stock must pass the same series of strict tests that we use for the Canadian All Stars. In brief, our growth test favours firms that have increased their sales-per-share and earnings-per-share over the last three years. We also prefer companies with strong returns on equity, healthy market performance over the last year, and low-to-moderate price-to-sales ratios. On the value front, we seek stocks selling at modest price-to-book-value ratios, compared to their peers and the market overall. We also give points to profitable dividend payers. In an effort to avoid risky situations, we avoid companies with high debt loads compared to their peers.
Top honour-roll stocks are those that get As on both measures, making them outstanding growth and value candidates. Only a few manage this feat each year and this time around just a single stock got the double-A prize. But don’t restrict yourself to the honour roll: we think all of the All-Stars are worthy of your time and consideration. These are the firms that got at least one A and one B on the value and growth tests. A total of 23 firms made it into All-Star team this year.
You can examine the data and grades for each stock in the We grade the 500 largest stocks table and read more about this year’s U.S. All-Star team by clicking on the links or click on the tabs near the top of the page.
Here is a full look at how our All-Star performed: