Stock Screen Speed Round: 3 Stocks to Put on Your Buy List or Give the Boot

Late last month I began culling a stock screen in search of stocks to put on my buy list. Today, I'm going to continue that process, looking at five more companies to determine whether they have what it takes to be potential portfolio holdings.

As a refresher, the screen I started with looked for the following:

  • An EBITDA multiple below seven (why you should use EBITDA multiples).
  • A market cap above $500 million.
  • A debt-to-equity ratio below 100%.
  • A return on capital above 8%.
  • A dividend yield above 2%.
  • No operating losses over the past 10 years.

I sorted the resulting list based on the total dollar value that insiders own.

What I'm looking at now are two of the key factors that can't be easily quantified -- the nature and strength of the business and the quality of the company's leadership.

Let's get started.

Williams-Sonoma (NYSE: WSM  )
Business: As you can easily gather from the name, Williams-Sonoma operates the Williams-Sonoma high-end home goods stores. In addition, it also owns the Pottery Barn, West Elm, and Rejuvenation brands and conducts business through retail stores, catalogues, and websites. While it's hard to be near-term excited about a business that sells primarily high-end home goods when we're still recovering from a housing-led, generational recession, I'm a fan of this business and think there's a solid future in it.

Management: In a world that still has an executive glass ceiling, I like companies with female CEOs, so that immediately gives Williams-Sonoma's Laura Alber an edge in my mind. Beyond that, I'm an especially big fan of leadership that's been with the company for a long period of time. In Alber's case, she's been with Williams-Sonoma for 17 years, and she played a key role in the expansion of the Pottery Barn brand. I'm not crazy about the fact that she doesn't own much stock in the company, but it's notable that Chief Marketing Officer Patrick Connolly -- who's been at William-Sonoma for more than three decades -- holds roughly $35 million in company stock, which is a big multiple of his $2.6 million 2011 compensation. In addition, former CEO and Chairman James McMahan still owns more than 10% of the company.

Bottom line: I'm definitely intrigued here. The stock recently jumped, but with a valuation that still looks reasonable and a business and management team that I can get behind, this is definitely going on my potential buy list.

ExxonMobil (NYSE: XOM  )
Business: What do you say about a 100-plus-year-old company that everyone is very familiar with? For one, it's notable that the key to Exxon's business isn't the gas stations that we see on corners all over the country. The company's upstream segment -- that is, where it finds and produces hydrocarbons -- is far and away the driver of Exxon's earnings. While the energy giant does have a global presence, 57% of its resource base is concentrated in the Americas region. But perhaps the most important potentially overlooked feature of Exxon's business is that it spends its money very wisely and earns returns on its capital that easily outperform the rest of the industry.

Management: As I mentioned above, I'm a fan of CEOs who have dedicated their careers to the company they're leading, and Rex Tillerson is definitely part of that club. With 36 years at Exxon, including company leadership roles in multiple segments of the business and geographies, Tillerson is somebody who truly understands Exxon. It's hard to expect that the CEO of a $400 billion company is going to have a huge percentage ownership stake, but the $150 million in Exxon stock that Tillerson owns is nothing to sneeze at.

Bottom line: I'd say we're two for two here. It's hard to expect that we'll see blockbuster returns from Exxon's stock going forward, but for a steady performer, I think this is a company well worth a spot on my list.

Werner Enterprises (Nasdaq: WERN  )
Business: First, an admission. Sometimes the data that stock screeners use is wrong for one reason or another, and that was the case with Werner. The screener I used listed the company's dividend yield as 3.1%, but its regular dividend is actually only 0.9%. By the time I noticed that, however, I had already taken a closer look at the company and really liked what I saw. What I can promise you is that the nature of Werner's business -- providing truckload transportation and logistics services -- is not going to excite you. The company's stability, dependability, and rock-solid balance sheet, on the other hand, are quite exciting. The question of true, durable competitive advantage concerns me in the trucking business, but Werner's business intrigues me.

Management: What's the best way to know that a company is being run in the interest of shareholders? When it's being run by insiders -- and, better still, founders -- who own big chunks of the stock. At Werner, founder and Chairman Emeritus Clarence Werner owns a cool 31% of the company, which is a stake worth more than $500 million. Clarence's son Gary is the current chairman and owns 3.5% of the company, while his other son, Greg, is the CEO and owns 5% of the company. While there are major advantages to investing in a company where management are also principle owners, a family-run business has its drawbacks. Additionally, it's notable that heavy insider ownership isn't particularly unusual in the trucking industry. Heartland Express is 30% owned by CEO Michael Gerdin, and co-founder Johnelle Hunt owns 17% of JB Hunt (Nasdaq: JBHT  ) . Over at Knight Transportation (NYSE: KNX  ) , Gary, Keith, Randy, and Kevin Knight combine for around 25% ownership of the company.

Bottom line: Let's make this three in a row. As noted above, I'm a bit iffy on the business here, but it's interesting enough that I'm on board to learn more.

Getting them on your list
My next step is to officially add all three of these to my watchlist and dig in further. If you like what you've seen here, go ahead and throw these on your own Motley Fool watchlist:

The Motley Fool owns shares of Heartland Express and ExxonMobil. Motley Fool newsletter services have recommended buying shares of Williams-Sonoma. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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