Nothing can destroy a company’s value more quickly than poor decision-making. If the top brass are making strategic misjudgments, the company is in trouble no matter how good its products are. The stocks in this chart show that management is on the right track. These companies have three-year annualized net sales and net income growth rates that exceed GDP growth. They all traded at a discount to their sector peers on a price-to- book basis, as well as a discount of 30% or more on a price-to-earnings basis (as of April 13, 2012). They have a three-year annualized total return that’s higher than their cost of equity (the minimum rate of return needed to compensate shareholders for the wait, plus a risk premium). Finally, their return on equity and three-year ROE exceed their peers’. Of these, we picked the top 10 based on three-year annualized return.
Savvy investors like executives with a history of creating value and increasing the stock price, at their current or previous employer. You also want companies where the management has a financial stake in the business, because if they mess up, their own net worth will take a hit, too.
While it’s always important to look at management, it’s essential when the company is in the unpredictable mining sector, as many of the stocks on this list are. The industry’s revenues depend on such factors as commodity prices and whether an unproven reserve becomes a proven one, so having people who can handle setbacks and take advantage of opportunities is a must.
The companies on our list have had their ups and downs, but if you look at annualized three-year total return—for most of them, it’s around 50% or higher—it’s clear management is doing something right. One business to watch is OceanaGold, which is trading at 1.34 times price-to-book ratio and has an impressive three-year annualized return of 147%. But the real vote of confidence comes from this fact: it’s one of two companies to make the list two years in a row.
Canadian Business prides itself in delivering the best investment information to our readers every year in the form of our Investor 500. This year the I-500 is available as an e-book for $3.99. In addition to our investment screens, stories and data-jammed tables, we are rating every single stock in the I-500 universe. Plus, we have chosen 20 stocks based on exclusive criteria that are rated tops in both momentum and value. We hope you find this year’s Investor 500 both interesting and profitable.
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