Monthly Archives

June 2020

StockPointer® US and ADR Model Portfolio Transactions – June 2020

We have rebalanced the Stockpointer® US and ADR model portfolios which are effective now. Here are the details for the US portfolio :

Ins:

  1. United Therapeutics Corporation (UTHR) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. AT&T Inc. (T) – Market Trend. Increase in the Telecommucations sector.
  3. Federated Investors (FHI) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Constellation Brands, Inc. Class A (STZ) – Both a Market Trend and an intra-sectoral transaction. Decrease in the consumer staples sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio. The company’s EPI also fell below 1.
  2. Employers Holdings, Inc. (EIG) – Both a market trend and an intra-sectoral transaction. Decrease in the Financial sector and no longer in the top of its sector.
  3. South State Corp (SSB) – Intra-sectoral transaction. No longer in the top of its sector. This company was in our portfolio following the merger with CenterState Bank Corportation (CSFL).

 

Here are the details for the ADR portfolio:

Ins:

  1. Swedish Orphan Biovitrum AB (BIOVF) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. Globe Telecom Inc. (GTMEF) – Market Trend. Increase in the Telecommucations sector.
  3. Ford Otomotiv San (FOVSY) – Intra-sectoral transaction. In the top of its sector.
  4. Daito Trust Construction (DITTF) – Intra-sectoral transaction. In the top of its sector.
  5. Wipro Technologies (WIT) – Intra-sectoral transaction. In the top of its sector.
  6. China Resources Cement (CARCY) – Intra-sectoral transaction. In the top of its sector.

 

Outs:

  1.  Trane Technologies (TT) – Market Trend. Decrease in the industrial sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Fomento Económico Mexicano (FMX) – Market Trend. Decrease in the Industrial sector.
  3. Megacable Holdings (MHSDF) – Intra-sectoral transaction. No longer in the top of its sector.
  4. DBS Group Holdings (DBSDF) Intra-sectoral transaction. No longer in the top of its sector.
  5. Garmin (GRMN) – We decided to exclude this stock because it is not an ADR and we think this is a good timing to do it.
  6. LyondellBasell (LYB) – We decided to exclude this stock because it is not an ADR and we think this is a good timing to do it.

Defensive Stocks with High Dividend Growth & Sustainability: BWX Technologies Inc, Quebecor Inc & Telus

In our last Number Cruncher, BWX Technologies Inc, Quebecor Inc & Telus were the top 3 in our screen. In this Number Cruncher Extra, we will go into more detail about these companies in Stockpointer.

The company has a significant SP Score of 60. In the short-term, sales, earnings per share and performance spread is uptrending. The stock clearly has momentum in its fundamentals. The long-term perspective is also good with solid past growth in all the variables. Briefly, it is difficult to say anything negative about these numbers except for the risk score which stands at 48. It’s a bit high, but the performance score of 87 surely compensate that risk.

 

This is the factor comparaison of BWX Technologies Inc. The stock could be classified as a quality and growth stock. The overall ranking is higher than its peers and sends a good signal.

 

Quebecor is the second company of our list. The interessing element with this business is its tremendous dividend growth. The dividend yield, not to be confused with the dividend per share, increased by 54% in the last 5-year. The company aggressively grew it’s dividend resulting in a higher dividend yield and the market didn’t increase as much as the dividend growth. The company has also solid earnings per share in the last year and the last 5-year.

 

This is the Economic Value Added section of Quebecor. The firm increased its NOPAT over the years, but also increased it’s EVA. The EVA can be seen as the value created by a company. Typically, some companies can growth their NOPAT, but engages in non-value generating activities which hurt shareholders in the long-term. In this case, the management intelligently used its capital to generate value.

Telus has the highest score of our Number Cruncher Extra. The performance score is close to 70 and at the same time the risk score is only at 36. With these scores, Telus has a great risk-return profile and a appreciable SP score of 65. The firm is more mature than the others and generated lower growth, but Telus also pays a 5% dividend which represent 64% of its net income. 5.5% growth in EPS and a 5% dividend could be seen as a 10.5% return for its shareholders.


The low risk score can be explained with its high and stable return on capital. It’s important to mention that the company increased it’s net operating profit after taxes (NOPAT) by 35% over 5-year which represents a 6.1% growth. The firm may not be the most exciting in terms of growth, but it is impressively solid.

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If you have any questions about the article, feel free to contact Anthony :
Amenard@Inovestor.com

If you would like to sign up for a free trial and learn how Inovestor can benefit you, contact Olivier:
Olamothe@Inovestor.com

Seeking Downside Protection Among Utilities, Telecom Sectors

What are we looking for?
Last week’s sharp market downturn reminded us of the not so distant, painful memories of the market correction of last February and March. As the saying goes, stocks take the staircase up and the elevator down. This is why investors can make use of defensive stocks to protect their portfolios and limit their downside. Utilities and telecommunications stocks can be great defensive holdings.

Today, we will look at Canadian and U.S. large caps in the telecom and utilities sectors. Dividends are a key component of these sectors, so we will focus on companies with a sustainable payouts.

The screen
We screened companies focusing on the following criteria:
· Market capitalization greater than $5-billion (Canadian);

· Four-year annual dividend growth higher than 6 per cent. A company whose dividend is
increasing should see its total return follow the same trend;

· Growth in net operating profit after taxes (NOPAT) over 24 months. The company needs to increase its operating income to have a sustainable growth in its dividend;

· StockPointer (SP) Performance Score of more than 65 – The score mainly takes into account risk-adjusted return on capital and free cash flow per share. A great score means the company has a good profitability to increase its dividend. The score varies between zero and 100.

For informational purposes, we have also included recent stock price, dividend yield, one-year price return and dividend payout ratio.

More about Inovestor
Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies. (Canadian and U.S. stocks and American depositary receipts). For more details about these defensive stocks, please subscribe the Inovestor for Advisors platform for free: inovestor.com/en-CA/store/

Company Ticker Sector Mkt. Cap. ($ Mil.)* 4Y Ann. Div. Growth (%) 24M NOPAT Chg. (%) SP Perform. Score Div. Payout (%) Div. Yld. (%) 1Y Price Rtn. (%) Recent Price ($)*
BWX Technologies Inc. BWXT-N Utilities 5,600 22.6 2.0 87.5 24.8 1.3 17.5 58.79
Quebecor Inc. QBR-B-T Telecom 7,450 66.5 0.5 70.0 16.8 2.7 -8.6 29.50
Telus Corp. T-T Telecom 29,780 7.4 0.9 69.7 64.0 5.0 -4.5 23.30
Portland Gen’l Electric POR-N Utilities 3,990 6.4 2.7 68.8 61.3 3.5 -19.3 44.63
Fortis Inc. FTS-T Utilities 23,860 6.7 1.6 68.1 38.0 3.7 -1.0 51.39
Canadian Utilities Ltd. CU-T Utilities 8,490 8.9 1.8 66.7 59.6 5.6 -18.5 31.02
American Water Works AWK-N Utilities 23,040 10.1 0.8 66.3 56.8 1.7 9.1 127.29
CMS Energy Corp. CMS-N Utilities 16,690 7.1 1.1 65.9 62.5 2.8 0.6 58.30
* Figures shown in native currency. Source: Inovestor

What we found
BWX Technologies Inc., a U.S. supplier of nuclear fuel and components, has the highest SP Performance Score of our filtered list. Its dividend grew at an average annual rate of 22.6 per cent over the past four years. Its revenue grew by more than 6 per cent annually over the past five years and return on capital went from 8.5 per cent to 19.1 per cent over that period. With a dividend payout of 24.8 per cent, we see room for future increases.

Media conglomerate Quebecor Inc. increased its dividend in the past four years by an average annual 66.5 per cent. The lack of investment opportunities may be the reason behind this decision, in which case increasing the dividend rather than doing bad investments could be viewed as a wise decision. The payout ratio is the lowest on our list at 16.8 per cent, leaving further room for additional increases without jeopardizing the business’s sustainability.

Telus Corp., one of the Big Three mobile phone operators in Canada, has the second-largest market capitalization of our screen (the largest market cap, belonging to American Water Works Co., is shown in U.S. dollars). Telus also shows stable and high returns on capital, which are reflected in its SP Performance Score of 69.7. The company seems a safe choice. Although its four-year annual dividend growth rate is considerably lower than either BWX or Quebecor, Telus’s strong market share and economies of scale should allow it to continue to increase its dividend in the future.

Investors are advised to do further research before investing in any of the companies shown in the accompanying table.
Here is the screen we used :

Portfolio Manager’s June comment For May Results

The Canadian stock market continued to rally in May. The S&P/TSX Total Return Index rose by 3% during the month, while the S&P 500 and the MSCI ACWI ex. USA gained 4.7% and 3.3% respectively. At May end, the year-to-date S&P/TSX Total Return Index loss was 9.7% while the S&P500 shrunk by 5% and the MSCI ACWI ex. USA fell off 14.6%. Despite being in negative territory, all equity indexes are now into a V-shape recovery.

The best TSX sectors for the month of May were Information Technology up 14.6% and Consumer discretionary up 8.1%. At the opposite, the worst performing sectors were Real Estate down 0.4% and Utilities unchanged on the month.

Our best performers in May were Canadian Tire up 20.4%, Parkland Corp up 17.6% and Constellation Software up 16.9%.

On the other hand, the weakest contributors were Kirkland Lake Gold down 7.8%, First National down 4.5% and Equitable group down 3.7%.