iM Capital Strength Select 20 of Russell 1000

In our article How to Beat the First Trust Capital Strength ETF (FTCS) and Other Large-Cap ETFs with the Capital Strength Stocks of the Russell 1000 we describe a methodology to select  capital strength stocks and the ranking thereof.  The table below list the top 20 selected capital strength stocks of the Russell 1000, and is updated weekly, usually on Sundays.

July 8, 2017   To view the latest top 20 selected capital strength stocks of the Russell 1000, which are updated weekly, a Gold subscription is required.

YieldPEG3 Yr
CSCOCisco Systems Inc1$157.04TECH$28.2215.65%4.29%1.823.69%0.781.18
WSOWatsco Inc.2$5.38INDUSTRIAL$0.2818.85%11.85%4.73.31%2.050.92
MOAltria Group Inc3$143.07STAPLE$13.88192.24%47.69%2.023.30%1.320.53
IPGInterpublic Group of Companies Inc. (The)4$9.76DISCRETIONARY$1.2831.99%34.67%5.852.92%3.641.05
EMREmerson Electric Co.5$38.78INDUSTRIAL$3.8221.15%5.61%3.983.19%2.581.09
BABoeing Co6$126.31INDUSTRIAL$10.43247.80%8.49%3.482.72%1.641.12
KMBKimberly-Clark Corp7$44.23STAPLE$6.431782.86%6.14%5.133.12%2.960.68
AMGNAmgen Inc8$130.39HEALTHCARE$30.2926.61%15.53%2.352.60%1.341.4
DPSDr Pepper Snapple Group Inc9$16.60STAPLE$4.4739.21%14.18%5.812.57%3.010.63
BBYBest Buy Co Inc10$16.91DISCRETIONARY$1.3026.20%23.20%8.832.46%2.10.86
CLXClorox Co (The)11$16.99STAPLE$1.39200.90%4.51%6.332.55%2.370.39
JNJJohnson & Johnson12$357.34HEALTHCARE$27.0223.09%7.23%2.812.53%1.310.72
MMM3M Co13$126.48INDUSTRIAL$10.8044.87%6.69%5.452.22%2.750.88
HASHasbro Inc.14$14.14DISCRETIONARY$1.2033.03%25.99%5.552.02%2.720.88
RPMRPM International Inc15$7.35MATERIALS$1.6016.39%52.61%3.092.18%0.431.14
HONHoneywell International Inc16$103.55INDUSTRIAL$11.1825.54%8.01%3.011.96%1.731.07
RTNRaytheon Co.17$48.61INDUSTRIAL$5.0922.28%7.67%1.541.91%4.380.66
GDGeneral Dynamics Corp18$60.68INDUSTRIAL$2.9929.25%11.97%2.551.67%6.130.99
DDE. I. du Pont de Nemours and Co19$73.47MATERIALS$8.1024.51%6.79%2.981.79%1.251.05
BAXBaxter International Inc20$33.71HEALTHCARE$2.7820.92%150.97%3.091.03%1.380.7

iM Rank:  Rank according to the ranking system described below (highest rank = 1).

Up Dn:  Change in rank since last week e.g. ↓2 if changed from rank 10 to 12, “- -” no change and “<>” new entry

Mkt Cap:  Market Capitalization ($ billions)

Sector Code: P123 codes which map to Global Industry Classification Standard codes

Dbt LTQ:  Long Term Debt reported for the most recent fiscal quarter ($ billions)

ROE TTM: Income Before Extraordinary Items for the Trailing 12 month period divided by the Average Common Equity expressed as a percentage.

EPS 3Y CGr: Compound annual growth rate of Earnings Per Share Excluding Extraordinary Items and Discontinued Operations over the last 3 years expressed as a percentage.

SI Ratio:  Number of days it would take to cover the Short Interest if trading continued at the average daily volume for the month

Yield: Dividend Yield (%) – Projection of the dividends that will be paid in the next 12 months divided by the latest closing price.

PEG: Price to Earnings growth ratio (uses the past 12 months earnings and next year’s EPS consensus estimate)

3Yr Beta:  Beta using up to 3 years of weekly returns of the stock and benchmark S&P 500 index.


The iM-Capital Strength Universe

The Capital Strength IndexSM stock qualification criteria were modified to select stocks for the iM-Capital Strength Universe. The stocks come from the Russell 1000 Index and must:

  1. have a minimum three-month average daily dollar Trading Volume of $10-million;
  2. have a Cost of Capital less than the Return on Capital;
  3. after meeting criteria 1 and 2, be in the top 500 securities by Market Capitalization;
  4. have at least $1-billion in Cash or $1.1-billion of Short Term Investments;
  5. have a Long Term Debt to Market-Cap ratio less than 30%;
  6. have a Return on Equity greater than 15%;
  7. have a compound annual growth rate of Earnings per Share over the last 3 years greater than 2.5%;
  8. and have a Short Interest Ratio of 9 days or less.

The universe is then reduced to 20 stocks by sorting eligible companies according to the Sales percent change (recent Quarter vs Quarter 1 year ago), and Average Dividend Yield over the last 60 months.  

The Ranking System

Stocks are ranked by a dividend yield-and-growth combination ranking system with four factors:

  1. Dividend Yield (%), using the Indicated Annual Dividend;
  2. Dividend Percent Change, Year over Year (%);
  3. Dividend Growth Rate, 3 Years (%);
  4. Dividend Yield, 5 Year Average (%).

Factor-1 has a weight of 70% and the remaining 10% each.

7 comments on “iM Capital Strength Select 20 of Russell 1000
  1. spp says:

    If current positions fall out of the universe then these stocks are only sold at time of rebalancing, but stocks subject to corporate mergers or offers to buy are sold immediately.

    Rule; first trading day of Last week in July portfolio will be reconstituted by seeking positions that no longer remain in the 20 stock universe..

    HP & Amgen have fallen out of the top 20 ranking.. why didn’t they get removed

  2. geovrba says:

    First trading day of the last week in July is Monday 7/31/2017.

  3. rboys says:

    This article:
    makes the case for preferring ROA vs. ROE as a selection metric for higher dividend stocks. Have you back-tested ROA in your capital strength models to see if it performs better than ROE?

  4. geovrba says:

    For Fred Piard’s model there is not much difference between using ROA or ROE in the ranking system. They both would give you an annualized return of about 12.5%. He gets 15.5% probably by allowing only 5 stocks out of 20 in a particular sector.

    Also he excludes trading costs and says nothing about turnover. His 20-stock model has about 530 buy and sell transaction per year, which means that every 4 weeks, on average, all 20 stocks get sold and replaced. If one takes trading costs including slippage at 0.1% of trade amount into account then the annualized return is reduced by about 3%.

  5. spp says:

    WSO is not on the November 26th reconstitution top 20 list. Why is it still in the portfolio current ?

    • geovrba says:

      From Model Description:
      The portfolio is reconstituted and rebalanced quarterly, on the first trading day of the last week of January, April, July, and October.

      Therefor next reconstitution of the iM-6 Stock Capital Strength Portfolio is end of January 2018. Until then WSO will be in the portfolio holdings.

  6. spp says:

    Sorry…I see it was left in the model form October.

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