5 Large Caps That Keep Beating the Market for a Simple Reason

|
 |  Includes: ALTR, DVN, GILD, GLW, PSA
by: Follow My Alpha

Can an old dog learn new tricks? Sure. At the same time what’s wrong with the ones they already know? These old tricks are great from our perspective if they help beat the market over the long term. Still, some investors often seem to quickly throw out the old and get in with the new whenever they see a hot company with a bunch of bells and whistles. In our view these old dogs are generally large-cap stocks that don’t do anything too glamorous. Regardless, these old dogs have one simple secret that allows them to keep beating the markets over the long term.

Today the S&P 500 (NYSEARCA:SPY) over the last 10 years has earned investors a return of -7.8%. That’s pretty depressing but not all is lost. The simple secret that helped a certain group of large-cap companies outperform the S&P500 on average has to do with net profit margins, which were extraordinarily high. The secret may seem like plain vanilla but don’t let this simple metric fool you; it's important in helping a company post mind-blowing returns over the long term.

To start we screened for large-cap companies (X>$10B). Next, we screened for companies that had a net profit margin of at least 30%. These companies may not be sexy but on average the numbers speak for themselves.

The list is rated from highest to lowest net profit margin.

Corning Inc (NYSE:GLW)

Sector

Technology

Industry

Diversified Electronics

Market Cap

$ 21.04B

Beta

1.43

Analyst Sentiment

14/22 - List Buy/Outperform (Bullish)

Click to enlarge

The company manufactures ceramics & specialty glass that is used in a variety of different industries. The firm’s net profit margin is 53.65%. Over the last 10 years GLW has lost 19.71%. This was the outlier of the group.

Short Interest Note:
The short interest for the firm is 1.30% as of 07/15/2011.

Devon Energy Corp (NYSE:DVN)

Sector

Basic Materials

Industry

Independent Oil & Gas

Market Cap

$ 27.22B

Beta

1.13

Analyst Sentiment

15/30 - List Buy/Outperform (Bullish)

Click to enlarge

The Company is engaged primarily in oil and gas exploration, processing of natural gas, and more. The firm’s net profit margin is 45.77%. Over the last 10 years DVN has gained 160.83%.

Short Interest Note:
The short interest for the firm is 1.30% as of 07/15/2011.

Public Storage (NYSE:PSA)

Sector

Financial

Industry

REIT - Diversified

Market Cap

$ 17.42B

Beta

0.96

Analyst Sentiment

12/23 - List Hold/Neutral (Neutral)

Click to enlarge

The company is a Real Estate Investment Trust (REIT) that acquires, develops, & operates self-storage facilities within the US. The firm’s net profit margin is 40.81%. Over the last 10-years PSA has gained 243.09%.

Short Interest Note:
The short interest for the firm is 2.80% as of 07/15/2011.

Altera Corp (NASDAQ:ALTR)

Sector

Technology

Industry

Semiconductor - Specialized

Market Cap

$ 11.28B

Beta

1.04

Analyst Sentiment

16/29 - List Buy/Outperform (Bullish)

Click to enlarge

The company manufactures and sells logics devices, PLDs, pre-defined design building, associated development tools and more. The firm’s net profit margin is 40.06%. Over the last 10-years ALTR has gained by 18.64%.

Short Interest Note:
The short interest for the firm is 3.70% as of 07/15/2011.

Gilead Sciences (NASDAQ:GILD)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$ 28.59B

Beta

0.36

Analyst Sentiment

20/28 - List Buy/Outperform (Bullish)

Click to enlarge

The company develops and sells innovative therapeutics in unmet medical need arenas. The firm’s net profit margin is 39.26%. Over the last 10 years GILD has gained 445.18%.

Short Interest Note:
The short interest for the firm is 1.10% as of 07/15/2011.

We hope this helps investors do their own due diligence on large-cap companies that may not be sexy but have the bottom line numbers to get the job done in the long term by outperforming the market. Not to mention all these companies come from very different sectors and industries. In addition, GLW is a perfect reminder that there is no silver bullet that will always help separate the winners from the losers. Financial metrics can only help narrow the pool of names to review.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.