Margins of Power
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.
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