Margins of Power

When large-cap companies, like these nine, post consistent growth in gross margins, it means they're outgunning their competition

By Numer de Guia

One of the most telling measures of a company's performance is its gross margin. That's how much of each dollar (in percentage terms) of a company's sales is left over after subtracting the costs of the products or services that it provides.

If a company can boost its gross margin figure year after year, it's a sign that its competitive position is strengthening vs. its rivals -- and that it maintains pricing power even in a time of very low inflation and economic weakness. On the flip side, it also indicates that a company has been successful in keeping its costs under control.

DON'T OVERPAY.

  And so, to this week's screen. We searched for companies that were able to increase revenues -- and gross profit margins -- every year for the past five years. We limited our search to large-cap stocks, with a market valuation of at least $5 billion.

The final filter: To avoid overpaying for performance, we screened for companies with positive operating price-earnings ratios on a 12-month trailing basis that are currently lower than the S&P 500's average operating p-e of 29.

After we ran the numbers, nine stocks emerged:

Ambac (ABK )

American International Group (AIG )

Equity Office Properties (EOP )

Fannie Mae (FNM )

General Dynamics (GD )

MGIC (MTG )

Safeway (SWY )

Signet Group (SIGY )

Tyco International (TYC )

De Guia is a portfolio services analyst for Standard & Poor's

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