By Numer de Guia How can an investor tell if a company is getting the most out of its assets? One way to measure corporate efficiency is called fixed-asset turnover. That's a ratio showing how much revenue a company generates per dollar of long-term assets -- its property, plant, and equipment. The higher the ratio, the better management is at leveraging the assets of the company, all other things being equal.
And if a company is successful in that regard, it stands to reason that it would aggressively invest in new fixed assets if future sales prospects look good. That could be a sign of management's confidence in the company's future.
Those two notions informed this week's stock screen. Starting with the list of stocks that Standard & Poor's analysts have ranked 5 STARS (buy) -- meaning that they expect them to outperform the overall market over the next 6 months to 12 months -- we winnowed it down to the 48 companies (i.e., those in the 50th percentile) with the highest fixed-asset turnover ratios. And for our second criteria, we then selected the 14 companies with the highest 5-year growth rate in capital expenditures -- a measure of spending on property, plant, and equipment.
When we ran the numbers, these stocks emerged:
Capital One (COF)
Constellation Brands (STZ)
Electronic Arts (ERTS)
Lehman Brothers (LEH)
Morgan Stanley Dean Witter (MWD)
Nautilus Group (NLS)
Quest Diagnostics (DGX)
SCP Pool (POOL)
Siebel Systems (SEBL)
Wal-Mart (WMT) De Guia is a portfolio services analyst for Standard & Poor's