October 2016's Best 5 Large Cap CCC Stocks In Each Market Sector

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Includes: ADM, BBY, CSCO, DOW, JNJ, PRU, QCOM, RAI, VLO, XOM
by: Dennis Dugan

Summary

The only filters used are a minimum of $9.997B market cap and a 2.28% minimum yield.

Minimum filtering produces some relatively low-scoring stocks on a "best of" list.

That especially applies to materials, telecom and utilities sectors.

As I continue October's installments of the "best" and "worst" series, let me invite SA readers to visit the latest update of "The Dugan Family Retirement Investing Plan" found here, in my SA Instablog.

Now, back to the sector best article. Filters for the best-of-sector list included only 2 criteria: a minimum market cap of $9.997B and minimum yield of 2.28%.

Using only these 2 filters also means that I didn't filter out stocks which fell into the bottom-scoring 50% of the 691 non-REIT and non-MLP stocks in David Fish's October 2016 CCC list. Normally a stock wouldn't be included in one of my "best-of" lists, based on Dugan Scores, unless it earned a place in the top half of the 691 companies. That means it had to achieve a Dugan Score of 45 or higher. But, if I limited selections to the top 50% of Dugan Scores, both utilities and telecoms would have earned no selections. As it is, some sectors couldn't earn all 5 spots. As a note, I personally don't buy stocks which aren't in the top-scoring half of the latest month's CCC list; or, for this month, haven't earned at least 45 points in the Dugan Stock Scoring System.

For your reference, I recently published my October's 'Best' CCC Companies With Market Cap Greater Than $3B, Yield Greater Than 2.3% And Other Filters here.

The sparse list of only 2 filters for this best-of-sector list will allow some companies to be included on the list (because I selected the top-scoring 5 stocks in each sector, regardless of score) which won't meet some investor's minimum metric criteria for consideration for further due diligence, i.e. size, yield, Dugan Score, debt/equity ratio, dividend increase history, P/E, relative Graham Score, etc.

The Dugan Scoring System is a tool to identify the overall quality of CCC companies. Those companies' stocks earning high Dugan Scores are high quality stocks which should produce better investing results, going forward, than otherwise would be attained by simply filtering for desired characteristics. In this context, highest quality means companies which have:

  • STRONG CURRENT CONDITIONS, as exemplified by: great value as measured by relative Graham number, low payout ratio, low debt/equity ratio and high Most Recent dividend increase %.
  • EXCELLENT FUTURE PROSPECTS, as exemplified by: high EPS growth forecasts for This Year, Next Year and 5 years out, and excellent dividend growth histories.

While the Dugan Scoring System isn't a popularity contest, it is a disciplined, systematic and dispassionate approach that evaluates each CCC stock on the basis of a wide variety of investment criteria from four broad categories: Risk, Value, Past Performance and Future Performance Expectations. So, the purpose of the Scoring System is to determine the all-around quality of a stock for buying, holding or selling purposes. No stocks, like no people, are perfect. Even high quality and high scoring stocks have weaknesses. So, a Dugan Score is a balanced, holistic picture of a stock, which includes its strengths and weaknesses.

You can see from the above explanations, the Dugan Stock Scoring System is about the current state and expected future performance of a company's stock, not necessarily the company itself. And, it doesn't matter how well a company's stock has performed for its owners in the past. It only matters what is the current condition and expected future performance of the stock.

The table below is a summary of the metrics used in the Dugan Scoring System, along with each metric's relative weighting in the overall formula. The weightings are my assessment of each metric's relative importance in calculating the company's overall quality.

After calculating the Dugan Score, a small bonus, or penalty, is applied to the earned-score for each CCC stock, based on a few brokers' recommendations for current sector weightings. The base bonus or penalty calculation is simple: market weight earns zero points, overweight earns 1 point, underweight earns minus 1 point, net from each of the 3 brokers.

Using the Dugan Scoring System, and the identified 2 filters, produces the following list as the highest scoring October 2016 CCC companies, by sector, broken into two halves for easier reading:

best of sector 1st half

best of sector 2nd half

For perspective about any company on the list, I always find it helpful to compare how well that company's performance in any column compares to the averages shown at the bottom of the table. Doing this will answer most questions about why a company may have achieved a low Dugan Score.

I hope you found the information valuable and enjoyed this journey. Comments are encouraged. Successful investing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. (Borrowed from Chuck Carnevale.)

Disclosure: I am/we are long JNJ, CSCO, QCOM, DOW, BBY, ADM, RAI, VLO, XOM, PRU.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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