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James Li
James Li
Articles (1397)  | Author's Website |

5 Peter Lynch Stalwarts With Expanding Profit Margins

GuruFocus Screener feature highlights effective filters

According to the All-in-One Screener, a Premium feature of GuruFocus, five stalwarts that have high financial strength and expanding operating margins include Mastech Digital Inc. (MHH), Columbia Sportswear Co. (NASDAQ:COLM), Medifast Inc. (NYSE:MED), Masimo Corp. (NASDAQ:MASI) and Edwards Lifesciences Corp. (NYSE:EW).

What is a stalwart?

Peter Lynch, the legendary Fidelity Magellan Fund manager, defined a stalwart as a large, well-established company that still offers growth potential. According to the Stalwarts screen, key criteria include good business predictability, high returns on invested capital and 10-year revenue and earnings growth rates between 10% and 20%.

New GuruFocus Filter Rank feature highlight

According to the feature announcement, the GuruFocus Filter Rank feature highlights with a "green thumbs up" icon the screener filters that have strong correlations with stock returns based on the latest backtesting results. For example, the cash-to-debt ratio has a strong positive correlation with stock returns with an efficiency rank of 10, i.e., the higher a stock's cash-to-debt ratio, the higher a stock's return.

Contrary to popular belief, our latest correlation research suggests that stocks with lower operating margins have higher returns than do stocks with higher operating margins. Despite this, Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) still seek companies with expanding profit margins as part of their four-criterion approach to investing.

Among the stalwarts, five companies have shown high financial strength and increased operating margins by 5% per year on average over the past five years.

Mastech

Even though Mastech's operating margin of 6.38% outperforms just 58.46% of global competitors, margins have increased approximately 5.2% per year on average over the past five years. On the heels of returns outperforming over 86% of global business service companies, Mastech has a GuruFocus profitability rank of 8.

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GuruFocus ranks the Pennsylvania-based information technology staffing company's financial strength 7 out of 10 on several positive investing signs, which include a high Altman Z-score of 7 and debt ratios that outperform over 67% of global competitors.

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Columbia Sportswear

Columbia Sportswear's current operating margin of 7.95% outperforms 76.55% of global competitors. The company's profitability ranks 8 out of 10 on the back of high returns on assets and margins increasing approximately 6% per year on average over the past five years.

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GuruFocus ranks the Portland-based apparel manufacturer's financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 6.43 and debt ratios outperforming over 70% of global competitors.

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Gurus with holdings in Columbia include Pioneer Investments (Trades, Portfolio), Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and Jeremy Grantham (Trades, Portfolio)'s GMO.

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Medifast

While Medifast's operating margin of 11.93% outperforms just 68% of global competitors, margins have increased approximately 6% per year on average over the past five years. The company's profitability ranks 9 out of 10 on the heels of a three-star business predictability rank and returns that are outperforming over 97% of global personal service companies.

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GuruFocus ranks the Baltimore-based weight management company's financial strength 7 out of 10, driven by a double-digit Altman Z-score and debt ratios outperforming over 82% of global competitors.

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Masimo

Masimo's operating margin of 23.3% outperforms 87.6% of global competitors. GuruFocus ranks the company's profitability 9 out of 10 on the back of strong returns and margins increasing approximately 9.7% per year on average over the past five years.

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GuruFocus ranks the Irvine, California-based medical device company's financial strength 9 out of 10 on several positive investing signs, which include triple-digit interest coverage and debt ratios outperforming over 86% of global competitors.

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Edwards Lifesciences

Edwards Lifesciences' operating margin of 28.81% outperforms 92.31% of global competitors. The company's profitability ranks 9 out of 10, driven on a three-star business predictability rank and margins that have increased approximately 6% per year on average over the past five years.

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GuruFocus ranks the heart valve manufacturer's financial strength 8 out of 10, driven by a high Piotroski F-score of 8 and a strong Altman Z-score of 13.87.

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Disclosure: The author has no positions in the stocks mentioned. The correlation research only gives a rough understanding of how the Screener filters were correlated with stock returns over a specific period. GuruFocus updates the filter rankings monthly. Past performance does not indicate future results and thus should be used with caution.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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lindaperryly
Lindaperryly - 1 month ago    Report SPAM

Difficulties will pass. Like the rain outside the window, the weather will eventually clear up and clear fireboy and watergirl

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