In the first round of the Growth Portfolio playoffs we have #12 seeded Masco Corporation (MAS) taking on #5 seeded Access Midstream Partners LP (ACMP). Masco manufactures, distributes and installs home improvement and building products. Access Midstream owns, operates, develops and acquires natural gas, natural gas liquids and oil gathering systems and other midstream energy assets and provides its services to producers under long-term fixed-fee contracts.
The following table depicts the recent earnings reports for each company:
($ in billions)
($ in billions)
Masco is up 44.39% in the past year excluding dividends (up 45.53% including dividends) while Access Midstream is up 67.08% excluding dividends (up 70.4% including dividends), and are beating the S&P 500, which has gained 30.58% in the same time frame. This matchup will be played out in a best of seven game series based on the metrics below. For a complete list of all the metrics utilized in the seven game series click here. Not all the metrics will be looked at if a team can win and win early. This wild-card matchup will determine the winner which will go on to play against General Motors Company (GM) in the next round of the playoffs for the Growth Portfolio Super Bowl.
Forward P/E is the metric of how many times future earnings you are paying up for a particular stock. The earnings portion of the ratio I utilize is the earnings value for the next twelve months or for the next full fiscal year. I like utilizing the forward P/E ratio as opposed to the trailing twelve-month P/E ratio because it is an indication of where the stock is going to go in the future. I like to get a glimpse of the future, but will take note of where it was coming from in the past. Access Midstream carries a 1-year forward-looking P/E ratio of 32.99 which is expensively priced for the future right now while Masco's 1-year forward-looking P/E ratio of 20.08 is currently expensively priced. Game One goes to Masco.
This metric is the trailing twelve-month P/E ratio divided by the anticipated growth rate for a specific amount of time. This ratio is used to determine how much an individual is paying with respect to the growth prospects of the company. Traditionally the PEG ratio used by analysts is the five-year estimated growth rate, however I like to use the one-year growth rate. This is because as a capital projects manager that performs strategy planning for the research and development division of a large-cap biotech company I noticed that 100% of people cannot forecast their needs beyond one year. Even within that one year things can change dramatically. I put much more faith in a one-year forecast as opposed to a five-year forecast. The PEG ratio some say provides a better picture of the value of a company when compared to the P/E ratio alone. The 1-year PEG ratio for Access Midstream is currently at 1.34 based on a 1-yr earnings growth of 34.28% while Masco's 1-yr PEG ratio stands at 1.17 with a 1-yr growth rate of 42.86%. Masco beats Access Midstream in Game Two.
EPS Growth Next Year
This metric is really simple, it is essentially taking the difference of next year's projected earnings and comparing it against the current year's earnings. The higher the value the better prospects the company has. I generally like to see earnings growth rates of greater than 11%. Again, in this situation I like to take a look at the one-year earnings growth projection opposed to the five-year projection based on what I discussed in the PEG section above. Access Midstream has a projected EPS growth rate of 34.28% while Masco sports a growth rate of 42.86%. Masco dominates Access Midstream in Game Three to take a three game lead in the series.
Dividend yield is a no brainer; it must be had in a dividend portfolio. The dividend yield is the amount of annual dividend paid out by a company in any given year divided by the current share price of the stock. In my dividend portfolio I don't discriminate against low yielding stocks as long as they provide excellent fundamental metrics in the form of the forward P/E, the 1-yr PEG and the 1-yr EPS growth rate. Dividends are a way to measure how much cash flow you're getting for each dollar invested in the stock. Obviously, the higher the yield, the better, as long as it is covered by the trailing twelve-month earnings. Access Midstream pays a dividend of 3.91% with a payout ratio of 180% of trailing 12-month earnings (it is allowed to go over 100% because it is structured as a partnership) while Masco pays a dividend of 1.32% with a payout ratio of 67% of trailing 12-month earnings. Access Midstream wrestles one game away from Masco to avoid the clean sweep.
Return on Assets
Return on assets is the metric which shows how profitable a company is relative to its total assets, telling us how efficient a management team is at using its assets to generate earnings. It is best to compare ROA values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. The assets of a company are comprised of both debt and equity. The higher the ROA value, the better, because the company is earning more money on less investment. Access Midstream is showing a 2.9% efficiency rate on their assets while Masco is showing 2.6% efficiency. With this victory Access Midstream is mounting a comeback and is only down by a game in the series.
Return on Equity
Return on equity is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. It is best to compare ROE values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. Equity is determined as the net income for the full fiscal year before dividends paid to common stock holders but after dividends to preferred stock, but does not include preferred shares. The higher the ROE value, the better. Access Midstream proves their efficiency of managing their shareholders equity to be 5.5% while Masco sports a value of 51%. By winning this game Masco advances to the next round of the playoffs with a four to two series win.
Although Masco upset Access Midstream, Access Midstream is still a great company with great long-term story. Both companies have excellent short-term and long-term earnings growth potential, hence the reason why they are in my growth portfolio. After beating Access Midstream, Masco will advance to the next round of the playoffs and go head to head against the #4 seeded General Motors.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!