The famous investing disclaimer states: "Past performance is not necessarily indicative of future results."

Fair enough.

But all else equal, I'll take my chances with the companies that have historically made profits, versus those that have historically made excuses.

Paying a massive premium for this past performance is where the game can get dangerous. So you can call me greedy, but I want these proven winners at reasonable-to-dirt-cheap prices.

Think I'm being too picky? Hold your judgments. I've found seven examples of exactly these kinds of stocks.

How I found them
Remember that I promised stocks that not only have proven track records but are also cheap. By cheap, I mean a stock that is selling for a low multiple on earnings when compared to its growth prospects.

Of course, cheapness doesn't matter if you can't trust the earnings or the growth estimates.

This is where a proven track record comes back in. For track record purposes, I looked for companies that have been growing for a decade or more efficiently and profitably.

To find all of these factors, I screened for the following:

  • 10-year average return on capital greater than 10%.
  • 10-year compounded earnings-per-share growth rate greater than 10%.
  • Price-to-earnings ratio below 20 (20 is my upper limit for cheap on a grower).
  • Future expected growth rate expected greater than 5%.

Here are seven intriguing companies that had all four criteria:


10-Year Return on Capital

10-Year EPS Growth Rate

P/E Ratio

Projected Long-Term EPS Growth Rate

ExxonMobil (NYSE: XOM)





Wal-Mart (NYSE: WMT)










Johnson & Johnson (NYSE: JNJ)





UnitedHealth (NYSE: UNH)





Cisco (Nasdaq: CSCO)





Walgreen (NYSE: WAG)





Source: Capital IQ, a division of Standard & Poor's.

These companies have achieved a lot in the past 10 years, especially in the face of two collapsing bubbles -- the dot-com bubble at the beginning of the decade and the housing bubble at the end.

Their profitable growth records allowed them to make the cut while formidable companies such as 3M and Merck fell one metric short. That said, you'll shortchange yourself if you go purely off the numbers and do no further research.

You need to ask yourself these three follow-up questions:

  • Are the current earnings a true representation of the company's current state? Watch out for one-time items, industry shifts, management changes, etc.
  • What future growth can I reasonably assume? Past growth figures and analyst estimates have a way of overstating future prospects.
  • Is the company likely to use capital in the future as efficiently as in the past? Watch out for empire-building, high-cost/low-upside bets, and new, unrelated business lines.

Digging in to find the answers to these questions will help you fill in the story behind the numbers. Let me get you started.

2 stocks whose back stories check out
Our Million Dollar Portfolio service currently owns shares of ExxonMobil and UnitedHealth and recommends them for new money around $50 a share and $30 a share, respectively. They seek to buy only the best of the best Motley Fool newsletter stock recommendations. And only at attractive prices. To learn more about Million Dollar Portfolio, simply click here and enter your email address in the box.

This article was first published April 23, 2010. It has been updated.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Anand Chokkavelu owns shares of ExxonMobil. He prefers when people use the words "proven track record" vs. "cheap" when introducing him. 3M, UnitedHealth Group, and Wal-Mart Stores are Motley Fool Inside Value recommendations. UnitedHealth Group is a Motley Fool Stock Advisorchoice. Johnson & Johnson is a Motley Fool Income Investor recommendation. The Fool has written calls (bull call spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson and a diagonal call position on UnitedHealth Group. The Fool owns shares of ExxonMobil, IBM, Johnson & Johnson, UnitedHealth Group, and Wal-Mart Stores. The Motley Fool has a disclosure policy.