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In my previous post, I tried to rank all the stocks that are included in the Russell 1000 index by the sum of their dividend and earnings yields. In this article, I tried to rank all these stocks by their debt and growth.

Russell 1000

Description from Russell Investments:

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The ranking's method requires all stocks to comply with all following demands:

  1. Average annual earnings growth for the past five years is greater than zero.
  2. Average annual sales growth for the past five years is greater than zero.
  3. The annual rate of dividend growth over the past five years is greater than zero.
  4. Average annual earnings growth estimates for the next five years is greater than zero.
  5. Total debt to equity is less than 0.5.
  6. The 20 stocks with the lowest total debt-to-equity ratio among all the stocks that complied with the first five demands.

I used the Portfolio123's powerful ranking system to grade all Russell 1000 stocks based on this theme. All the data for this article were taken from Portfolio123.

After running the ranking system on May 09, 2013, I discovered the following twenty stocks:

Rank

Ticker

Name

1

(NASDAQ:GNTX)

Gentex Corp

2

(NYSE:MA)

MasterCard Inc

3

(NYSE:V)

Visa Inc

4

(NASDAQ:FAST)

Fastenal Co

5

(NYSE:FDS)

FactSet Research Systems Inc.

6

(NASDAQ:CHRW)

C.H. Robinson Worldwide Inc.

7

(NASDAQ:TROW)

T. Rowe Price Group Inc

8

(NASDAQ:EXPD)

Expeditors International of Washington Inc.

9

(NYSE:ROL)

Rollins Inc.

10

(NASDAQ:PAYX)

Paychex Inc.

11

(NYSE:RL)

Ralph Lauren Corp

12

(NYSE:ACN)

Accenture PLC

13

(NASDAQ:QCOM)

QUALCOMM Inc.

14

(NASDAQ:LECO)

Lincoln Electric Holdings Inc

15

(NYSE:MSM)

MSC Industrial Direct Co Inc.

16

(NASDAQ:ADP)

Automatic Data Processing Inc.

17

(NYSE:WSM)

Williams-Sonoma Inc.

18

(NYSE:GES)

Guess ? Inc.

19

(NYSE:NKE)

Nike Inc

20

(NYSE:PSA)

Public Storage

The table below presents the 20 companies, their last price, their market cap and their industry.

(click to enlarge)

The table below presents the average annual earnings growth for the past five years, the average annual sales growth for the past five years, the average annual dividend growth for the past five years, the average annual earnings growth estimates for the next five years, and the total debt to equity ratio for the 20 companies.

(click to enlarge)

Back-testing

In order to find out how a portfolio based on this ranking system would have performed during the last year, last five years and last 14 years, I ran the back-tests, which are available by the Portfolio123's screener.

The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmark (S&P 500), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests results are shown in the charts and the tables below.

One year back-test

(click to enlarge)

Five years back-test

(click to enlarge)

14 years back-test

(click to enlarge)

Summary

The best Russell 1000 stocks in terms of debt and growth has given much better returns during the last year, the last five years, and the last 14 years than the S&P 500 benchmark. The maximum draw down was lower in all three tests. The one-year return of the screen was 21.01% while the return of the S&P 500 during the same period was 19.74%. The difference between the best Russell 1000 stocks screen to the S&P 500 benchmark was much more noticeable in the 14 years back-test. The 14-year average annual return of the screen was at 10.07% while the average annual return of the S&P 500 index during the same period was only 2.0%. Although this ranking system has given superior results, I recommend readers use this list of stocks as a basis for further research.

Source: Ranking The Russell 1000 Stocks By Debt And Growth