Photo Credit: Keith Cooper (Flickr)

One new stock makes July’s Exec Comp Aligned With ROIC Model Portfolio, which was made available to members on 7/13/17.

Recap from June’s Picks

Our Exec Comp Aligned With ROIC Model Portfolio (-3.1%) underperformed the S&P 500 (-0.3%) last month. The best performing stock in the portfolio was Insteel Industries (IIIN), which was up 5%. Overall, seven out of the 15 Exec Comp Aligned With ROIC Stocks outperformed the S&P in May and six had positive returns.

Since inception, this model portfolio is up 24% while the S&P 500 is up 18%.

The success of this Model Portfolio highlights the value of our Robo-Analyst technology, which scales our forensic accounting expertise (featured in Barron’s) across thousands of stocks.

This Model Portfolio only includes stocks that earn an Attractive or Very Attractive rating and align executive compensation with improving ROIC. We think this combination provides a uniquely well-screened list of long ideas because return on invested capital (ROIC) is the primary driver of shareholder value creation.

New Stock Feature for July: Foot Locker (FL: $49/share)

Foot Locker (FL), a footwear apparel and accessories retailer, is the lone addition to our Exec Comp Aligned With ROIC Model Portfolio in July.

FL has grown revenue by 3% compounded annually over the past decade. Over the same period, after-tax profit (NOPAT) has grown by 9% compounded annually to $778 million in FY2017. The accelerated NOPAT growth rate has been driven by FL’s rising profit margins. Per Figure 1, NOPAT margin has improved from 6% in 2007 to 10% during the trailing twelve months (TTM).

Figure 1: Foot Locker’s Decade of Profit Growth

Sources: New Constructs, LLC and company filings

FL currently earns a third-quintile 10% return on invested capital (ROIC) and has generated a cumulative $762 million (12% of market cap) in free cash flow (FCF) over the past five years. FL’s $516 million in FCF over the trailing twelve months equates to a 5% FCF compared to 2% for the average S&P 500 stock.

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