In the filter created this week for The Globe and Mail, we screened for US energy stocks with strong fundamentals.
With the recent U.S. interest rate hike and current tensions between the United States and Saudi Arabia, investors are concerned about what all this means for oil prices and the U.S. economy. Crude prices are a lead driver of all economies and it is crucial to understand the effect rising prices could have on various sectors. Today, we focus on a sector with a lack of correlation to other sectors – the energy sector itself.
By using the following criteria, we are able to generate a list of firms whose profit gains are supported by healthy fundamentals:
- A 12-month change in current operating value equal to or greater than zero. Current operating value represents the real profits of the company and is calculated by the net operating profit after tax (NOPAT) divided by the cost of capital – this allows us to better compare companies with varying costs and of different sizes;
- A positive change in the 12-month NOPAT – a measure of operating efficiency that excludes the cost and tax benefits of debt financing by simply focusing on the company’s core operations net of taxes;
- Rising earnings per share over a 12-month period;
- Future growth value/market value (FGV/MV) between minus 50 and 50, to exclude companies with exaggerated discounts or premiums. FGV/MV represents the proportion of the market value of the company that is made up of future growth expectations rather than the actual profit generated. The higher the percentage, the higher the baked-in premium for expected growth and the higher the risk.
Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.
