Methodology: The stocks in this chart all have three-year annualized net sales and net inco me 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 1, 2011. And 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).
Why you should care: Due diligence isn’t easy, especially for the retail investor. Every time Canadian private equity company Onex makes an investment decision, it is made on the basis of the potential for long-term value creation. “Our philosophy,” as Onex’s billionaire CEO Gerald Schwartz frequently says, “is to operate like a forever owner of an asset.” That’s why, whenever possible, Onex spends so much time meeting with management of target companies. Average investors don’t have the clout to demand face time with corporate leaders. But they can use this screen to assess the quality of management at potential investments.
Worth noting: This year’s list is dominated by commodity plays, which could get hit by a pullback in demand. Nevertheless, last year’s best managed stocks outperformed every other group, returning 41.7% on average. The top performer was Silver Wheaton, a Vancouver metals royalty outfit. It delivered a 154% gain but failed to make the cut this year. There are no repeats from last year, but Barrick Gold is back after making the cut two years ago.