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Anthony Menard

Number Cruncher Extra – Power Corporation of Canada, Summit Industrial Income REIT and Tourmaline

In our last Number Cruncher we discussed how Power Corporation of Canada (POW), Summit Industrial Income REIT (SMU.UN) & Tourmaline (TOU) were stocks with high profitability and low price-to-book. Now, we will look at these companies with our software Stockpointer.

Here is the screener we used to find these stocks

Let’s start with POW

The company has a high score of 73 in our system. The SP score is derived from the performance (69.8) and risk (15.5) score. The company has great value and yield. The performance decreased overtime which is negative, but sales and earnings per share grew at a healthy pace specially in the last year.

 

Our system has long considered POW to be undervalued, but this time the market seems to agree with our views. As we see, the intrinsic value is still higher than share price and so the share price seems to have room to increase even more.

 

let’s continue with SMU.UN

SMU.UN has a solid SP score of 63 fueled by its strong performance (60.93) score and risk  score (30.2). Our system evaluates SMU.UN to be an equal weighted stock in terms of factor except for the lack of momentum. Summit had robust sales and earnings growth this year while having incredible 5-year metrics.

 

Based on Stockpointer, SMU.UN is the best of its class compared to other REITs. It is higher than the horizontal line, meaning that the stock is profitable, and is in the right cadran meaning that the stock is still considered cheap.

 

Finally, TOU.

 

TOU has a below average SP score of 53 due to its lack of long-term performance, the performance score is of only 48.2 while the risk score stands at 29.4. Our system considers TOU to be a value quality with a lot of growth potential.

TOU is a riskier pick as seen by its performance spread. The company mostly destroyed value for shareholders in the last 5 years. We need to consider that the environment wasn’t easy for oil and gas companies. Has the time changed? Perhaps.

 

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

These 10 TSX dividend stocks offer profitability and attractive valuations

WHAT ARE WE LOOKING FOR?

Profitable companies that have a sensible price.

Return on capital and price-to-book tend to evolve in the same direction. As profitability rises, the price-to-book ratio is likely to increase to compensate for higher profitability. But what if we established lower and upper limits – such as a floor for profitability and a ceiling for valuation? Today, we’ll use such floor and ceiling limits to help us discover mispriced stocks.

THE SCREEN

We screened Canadian stocks focusing on the following criteria:

  • Market capitalization higher than $2-billion;
  • Return on capital higher than 10 per cent (we want a profitable company – this is our profitability floor);
  • Price-to-book lower than 2.5 (we want a company with moderate valuation based on shareholder’s equity – this is our valuation ceiling);
  • Positive three-month price growth (that is, a company with a positive trend in its share price);
  • Positive two-year sales growth (we want a growing company);
  • Positive one-year growth in current operating value (COV) – we want a company with improving fundamentals. We use discounted cash flow to derive the COV. The difference between the COV and a traditional DCF is that we assume the company will generate the same cash flow forever. In other words, we do not incorporate any growth component into the calculation. It is a way to evaluate the minimum value of a business; the parameters are determined automatically by our platform.

For informational purposes, we have also included price-to-earnings, three-year annualized growth in earnings per share, dividend yield and one-year price return. Please note that some ratios may be shown as of end of previous quarter.

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.

WHAT WE FOUND

Floor-and-ceiling strategy opens door to mispriced stocks

Ticker Name Price MKT. CAP ($MIL) ROC (%) P/B 3M PRICE RTN. (%) 2Y SALES GRTH. (%) 1Y COV GRTH. (%) P/E 3Y ANN. EPS GRTH. (%) 1Y PRICE RTN. (%) DIV. YIELD (%)
POW-T Power Corporation Of Canada 41.89 28340 18.2 1.3 7.2 53.2 31.0 10.6 22.4 56.2 4.3
EQB-T Equitable Group Inc. 144 2443 18.1 1.4 6.0 12.9 31.3 8.7 15.5 87.7 1.0
KL-T Kirkland Lake Gold Ltd. 51.8 13819 16.0 2.0 7.6 125.7 12.1 13.1 18.7 -19.8 1.8
GWO-T Great-west Lifeco Inc. 38.64 35921 15.8 1.6 9.2 56.7 18.2 11.1 10.6 45.2 4.5
SMU-UN-T Summit Industrial Income Rei 20.83 3506 15.5 1.4 30.0 74.5 50.7 3.9 109.7 63.4 2.7
ARX-T Arc Resources Ltd. 11.97 8665 14.7 1.5 14.0 80.8 44.4 47.9 -11.0 105.7 2.2
SLF-T Sun Life Financial Inc. 65.06 38099 13.7 1.7 2.1 21.4 10.9 11.5 13.0 18.6 3.4
IAG-T Ia Financial Corporation Inc 72.05 7743 13.3 1.2 6.2 34.3 8.1 9.8 7.5 55.1 2.7
TOU-T Tourmaline Oil Corp. 43.77 13063 11.5 1.4 22.9 83.8 35.0 9.6 36.3 172.0 1.6
WCP-T Whitecap Resources Inc. 7.06 4457 10.6 2.0 12.8 16.2 50.0 7.8 66.3 204.3 2.8

Source: Inovestor

Financial conglomerate Power Corp. of Canada has the highest three-year annual EPS growth on our list, at 22.4 per cent. (One of the public companies in which it owns a majority stake, Great-West Lifeco Inc., also made the screen). The jump of 31 per cent in Power Corp.’s current operation value is possibly related to the revised valuation of Wealthsimple Inc., one of its private investments, which surged from $1.4-billion to $5-billion between October, 2020, and May, 2021. Wealthsimple is well known for its robo-adviser and low-fee brokerage accounts.

Summit Industrial Income REIT has seen the largest three-month price increase (30 per cent) and three-year EPS growth (109.7 per cent) of our screen. Real estate investment trusts register fair value adjustments to reflect the increased value of their properties. For Summit, year to date, these adjustments already amounted to $693-million, which helps explain the jump in its unit price over the past three months. This year is exceptional, but Summit has shown constancy in reporting this kind of adjustment, with an average of $150-million a year in such adjustments in the past three fiscal years.

Natural gas producer Tourmaline Oil Corp. has achieved impressive two-year sales growth (83.8 per cent) and three-year annualized EPS growth (36.3 per cent) despite a challenging environment. Pension fund giant Caisse de dépôt et placement du Quebec said last week it will exit oil company investments next year, but will remain invested in companies involved in infrastructure such as pipelines and in natural gas activities. If oil becomes the next coal, so to speak, in the eyes of pension funds and other institutional investors, it could have an impact on oil producer share prices in the short-term. In this situation, natural gas companies could be an interesting alternative.

Although we did not filter stocks based on P/E and dividend yield, we note the median P/E of our list is 10.2, the median dividend yield is a respectable 2.7 per cent (not shown), and every stock pays a dividend.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Anthony Ménard, CFA, is vice-president of data management at Inovestor.

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Number Cruncher Extra – Pfizer, Watsco & PepsiCo

In our last Number Cruncher we discussed how Pfizer (PFE), Watsco (WSO) & PepsiCo (PEP) were good candidates if we wanted to protect ourselves against a market correction. Now, we will look at these stocks with our software Stockpointer.

Here is the screener we used to find these stocks

Let’s start with PFE

The company has a high score of 73 in our system. The SP score is derived from the performance (72) and risk (23) score. The company has a great yield and quality score, but the volatility factor seem to be an issue.

In the last 3 years, the stock price lost approximately 20% of its value 3 to 4 times. We cannot consider the stock to be “low vol”. However, the stock grew by more than 35% since the Feb 14. The beginning of the market crash and it rebounded fairly quickly during the crash. In may 2020, the company was already at its pre-pandemic level.

Let’s continue with WSO

WSO has a solid SP score of 69 fueled by its strong performance (81.3) score and risk  score (34.6). Our system evaluates WSO to be a quality company with a yield/growth/volatility tilt. The company had robust sales and earnings growth this year while having more than decent 5-year metrics.

WSO had NOPAT and EVA growth that were acceptable, but not fantatistic. However, since the pandemic the company is generating important EVA and NOPAT growth is the reason behind the sharp share price increase since the pandemic.

PEP has a solid SP score of 65 fueled by both its (71.4) and risk (36) score. Our system evaluates PEP to be a quality and yield company which is not surprizing.

Based on the Intrinsic value of the company, our system constantly undervalue the value of the company potentially due to its qualitative aspects. Recently, we see the company exceeded it last intrinsic value peak of 2019 and had a solid momentum both in its share price than its intrinsic value.

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

 

 

Eight U.S. defensive dividend stocks for a frothy market

WHAT ARE WE LOOKING FOR?

Dividend-paying U.S.-listed stocks with lower risk.

The S&P 500 is up 19.5 per cent over the past six months and its price-to-earnings ratio now stands at 35.4, higher than the 1999 dot-com peak of about 33. Given the current valuation, investors may prefer to reduce their exposure to the U.S. market and/or select stocks that are fundamentally supported by a dividend.

THE SCREEN (you can add it to your screener section here)

We screened U.S. stocks focusing on the following criteria:

  • Market capitalization higher than US$2-billion;
  • Beta of 0.8 or less. A beta lower than one implies that the stock price should increase less during rising markets and should decline less in a falling market;
  • Three-year annual dividend growth higher than 5 per cent;
  • Five-year annual earnings per share growth higher than 7 per cent – we want the dividend growth to be backed by earnings per share growth;
  • Dividend yield higher than 2 per cent – we’re looking for companies with a larger yield than that of the S&P 500, which is currently 1.3 per cent;
  • StockPointer (SP) Risk Score lower than 40 – The risk score is scaled from zero to 100 where 100 is a high-risk company. 40 is considered low-to-medium risk. The score uses many criteria such as valuation risk perceived by our software, leverage and stability of profitability.

For informational purposes, we have also included P/E, five-year annual return of capital, and one-year price return. Please note that some ratios may be shown as of end of previous quarter.

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. StockPointer is a decision-making tool covering Canadian and U.S. securities developed for retail investors and investment advisers. 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).

TICKER NAME PRICE MKT. CAP ($MIL) BETA 5Y ROC (%) SP RISK SCORE DIV. YIELD (%) 5Y EPS GRTH. (%) 3Y DIV. GRTH. (%) P/E 1Y PRICE RTN. (%)
PFE-N Pfizer Inc. 46.84 262257 0.77 13.5 23.0 3.3 15.2 5.0 20.2 37.6
WSO-N Watsco, Inc. 289.13 11200 0.75 15.9 34.6 2.7 13.0 11.3 32.2 25.1
PEP-Q Pepsico, Inc. 157.09 217098 0.80 11.9 36.0 2.7 10.7 7.4 26.4 8.9
ERIE-Q Erie Indemnity Company Class 180.87 8423 0.03 23.6 26.5 2.3 9.9 7.2 34.7 -14.3
CVBF-Q Cvb Financial Corp. 19.94 2710 0.73 10.3 24.8 3.6 9.8 8.7 12.7 13.0
PG-N Procter & Gamble Company 144.05 349998 0.59 12.3 31.5 2.4 9.3 5.2 25.3 6.0
TSN-N Tyson Foods, Inc. Class A 78.23 27993 0.75 12.0 19.9 2.3 8.7 14.0 12.1 27.1
PKG-N Packaging Corporation Of Ame 152.45 14480 0.73 13.3 31.0 2.6 7.3 12.2 22.8 46.4

WHAT WE FOUND

Pharmaceutical giant Pfizer Inc. has the highest five-year EPS growth on the list at 15.2 per cent, and second-lowest risk score, at 22.8. Its COVID-19 vaccine revenues, which everyone had thought would be non-recurring, are increasingly likely to continue, at least in the medium term. A growing body of research is suggesting a third injection may give additional protection against the virus for certain vulnerable populations, such as those in long-term care.

Watsco Inc., which distributes heating, air conditioning and refrigeration equipment, has the second-highest earnings growth (13 per cent) and return on capital (15.9 per cent) on our list. As a distributor, the company needs relatively little capital to operate, leaving space to pay dividends. In the long term, the company could benefit from more recurrent extreme temperatures, such as we saw in Western Canada this summer.

Food and beverage company PepsiCo Inc. has a solid income stream from its various consumables such as Pepsi, Lay’s, Doritos, Quaker Oats, Aquafina and Gatorade, to name a few. PepsiCo has repetitive sales, reputable brands and respectable earnings and sales growth – key characteristics that we look for in a defensive company.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Anthony Ménard is an investment analyst at Inovestor Asset Management.

 

For more details about these stocks, subscribe to the Inovestor for Advisors platform for free: inovestor.com/en-CA/store/

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Number Cruncher Extra – Spin Master, Linamar & Sleep Country

In our last Number Cruncher we discussed how Spin Master (TOY), Linamar (LNR) & Sleep country holdings (ZZZ) generate solid free cash flows. Now, we will look at these stocks with our software Stockpointer.

Here is the screener we used to find these stocks

Let’s start with TOY

The company has a high score of 68 in our system. The SP score is derived from the performance (68.5) and risk (32.1) score. The company doesn’t distinguish itself by its factor exposure. The important EPS growth in the last year is principally due to poor performance in the last year. Although, The company has an impressive 5-year EPS growth of 53.1%.

The company has a ESG risk rating stranding at 13.2 which is much lower than the S&P/TSX which stands around 20. With a score of 7 of its overall managed risk score, the company seems to take desirable actions towards its notable material ESG issues. The overall exposure score of the company towards ESG issues is relatively low-to-moderate at 20.2.

Let’s continue with LNR.

 

LNR has a solid SP score of 67 fueled by both its strong performance (63.9) and risk (21.1) score. Our system evaluates LNR to be a value company with a quality tilt. The poor performance in all the metrics reflect the cyclicality of their business, but these should improve going forward given the strong demand by consumers.

The MVA represnts the premium that the market attributes to the company. Currently, the company is in the middle of its historical valuation. The company not expensive, but still more expensive than in 2019-2020.

 

Finally, ZZZ.

ZZZ has a solid SP score of 73 fueled by both its strong performance (77.8) and risk (28.6) score. Our system evaluates ZZZ to be a company of quality due to its score of 89. The company growth much higher than its historical norm ( 1-year 30.7% VS 5-year 12.4%). Earnings growth follows the path buth with a stronger trend.

The company’s share price is much more volatile than the result of the company. The NOPAT is fearly stable and the EVA tends to grow over time and generate value for its shareholders.

 

 

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

 

Nine Canadian stocks to play the consumer savings boom

These nine Canadian stocks are poised to absorb excess consumer savings.

WHAT ARE WE LOOKING FOR?

Canadian equities that generate plenty of free cash flow.

Canadian consumers are now saving 13.1 per cent of their income, compared with a savings rate of 3.6 per cent at the beginning of 2020. After jumping early in the COVID-19 pandemic, the savings rate began to decline last year, but it is still significantly higher than before the outbreak. The consumer discretionary sector is well positioned to receive this spare cash.

THE SCREEN

We screened Canadian stocks in the sector focusing on the following criteria:

  • Market capitalization greater than $500-million;
  • Free-cash-flow-to-capital ratio higher than 10 per cent. We want a company that generates a large amount of free cash flow as a percentage of capital. A high ratio shows the company has plenty of cash to invest or distribute to shareholders;
  • Economic performance index (EPI) change higher than 0.10. The EPI is the return on capital divided by the cost of capital. A positive change in this value shows an improvement in the company’s risk-return profile;
  • A StockPointer (SP) risk score lower than 35. Developed by Inovestor, the SP risk score is scaled from 0 to 100, where 100 is a high-risk company and 35 is considered low to medium risk. The score uses many criteria such as valuation risk perceived by our software, leverage and stability of company profits.

For informational purposes, we have also included the EPI, P/E ratio, price-to-book ratio, one-year price return and dividend yield. Please note that some ratios may be reported as of end of the previous quarter.

WHAT WE FOUND

TICKER NAME PRICE MKT. CAP ($MIL) FCF / CAPITAL (%) EPI CH. 3M SP RISK SCORE EPI P/E P/B 1Y PRICE RTN. (%) DIV. YIELD (%)
TOY-T Spin Master Corp 46.44 4751 26.0 0.20 32.1 1.18 30.8 4.2 65.9
WJX-T Wajax Corporation 25.3 545 25.0 0.11 32.8 0.75 13.1 1.5 133.0 3.95
LNR-T Linamar Corporation 72.35 4735 19.7 0.23 21.1 1.03 13.4 1.1 73.2 0.88
RUS-T Russel Metals Inc. 34.2 2144 18.8 0.74 32.1 1.81 10.3 2.1 82.4 4.44
RCH-T Richelieu Hardware Ltd 43.47 2435 17.7 0.37 29.6 2.52 21.6 4.1 29.1 0.64
ZZZ-T Sleep Country Canada Holding 33.04 1217 15.7 0.34 28.5 2.33 14.5 3.3 65.0 2.36
HDI-T Hardwoods Distribution Inc. 35.62 758 12.0 0.13 26.5 1.51 17.1 2.4 78.1 1.12
UNS-T Uni-select Inc. 17.35 735 11.3 0.28 31.0 0.54 14.0 1.2 143.7
CTC-A-T Canadian Tire Corporation 196.88 11972 11.0 0.32 23.7 1.60 13.1 2.5 55.6 2.39

Children’s entertainment company Spin Master Corp. has the highest free-cash-flow-to-capital ratio on our list, at 26 per cent. The company has a strong portfolio of brands ranging from good old Etch A Sketch, to the well-established Paw Patrol and DC Universe figurines.

Spin Master faced difficulties before the pandemic with its supply management in Asia, and COVID-19 exacerbated fears of a supply crunch. Fortunately, the company now seems to be moving in the right direction. Spin Master reported second-quarter earnings on Aug. 4 and raised its forecast for 2021 sales growth from the low teens to the mid-teens.

Automotive original equipment manufacturer Linamar Corp. has a risk score of 21.1, the lowest of our screen, which reflect a low valuation risk, also shown by its low price-to-book ratio of 1.1 and P/E of 13.4. The microchip shortage is having an impact on the auto sector and it is still uncertain when the shortage will end.

On the bright side, used car prices are up 22.6 per cent year to date according to the CarGurus price index, largely owing to strong demand. High used car prices stimulate new car sales and dealers’ inventories are low. This could lead to robust sales for Linamar as dealers need to replenish their inventories of new cars. Linamar is scheduled to report second-quarter earnings on Aug. 11.

Mattress retailer Sleep Country Canada Holdings Inc. reported solid second-quarter earnings on Aug. 3, and appreciative investors bid up the share price by 15.5 per cent the next day. The company has benefited from a pandemic shift in consumer spending. This second quarter demonstrated the shift does not appear to be over. The company plans to invest in software to enhance inventory management and in the customer experience to maintain its growth.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Anthony Ménard is an investment analyst at Inovestor Asset Management. Inovestor for Advisors is a fundamental analysis research platform specializing in the economic value-added (EVA) approach.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

StockPointer® Canada Portfolio Transactions – July 2021

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Stockpointer® Canada model portfolio. These trades are effective as of Friday, July 16 after market close. Here are the details of the trades:

Ins:

  1. North West Company (NWC) – Market Trend. Increase in the Consumer Staple sector as shown by the Top 100 index, therefore, increasing our position in the portfolio. We chose the company because of its high SP score.
  2. GDI Integrated Facility Services Inc. (GDI) – Intra-sectorial transaction market. In the top of its sector.

Outs:

  1. Quebecor (QBR.B) – Market Trend. Decrease in the telecommunication sector as shown by the Top 100 index, decreasing our position in the portfolio.
  2. Evertz Technologies (ET) – Intra-sectorial transaction and market. No longer in the top of its sector.

Number Cruncher Extra – Netflix, Nike, Etsy & Amazon

In our last Number Cruncher we discussed how Netflix (NFLX), Nike (NKE), Amazon (AMZN) & ETSY (ETSY) are companies with multiple qualities. Now, we will look at these stocks with our software Stockpointer.

Here is the screener we used to find these stocks

Let’s start with Netflix

The SP score of Netflix is 52 which is explained by its performance score of 71 and risk score of 53. The risk score is high compared to other companies and this is why the SP score is impacted. The company grew at a relatively constant rate of 29.1% in the last 5-year period while earnings grew by an impressive 81.8% per share during the same period. T

 

We can see here the margin improvement we talked about in the Number Cruncher, but translated into return on capital. The return on capital passed from 8.1% to 13.1% in the last 5-year. On the other hand, the company was judged less risky by investors. The cost of capital decreased from 12.1% to 8% during the same period. Consequently, the performance spread increased from -4% to 5.1% between 2017 and 2021.

 

The SP score of Nike is 63 which is explained by its performance score of 75 and risk score of 41.The last year performance of Nike is easily visuzalied by the earnings per share growth of 123.5% while sales grew by 19%.

 

Nike is a fantastic company, but we think investors need a bit of caution concerning the valuation. The share price tripled in the last 5-year, but earnings grew by only 50%.Was the market pricing not aggressive enough in the past or maybe the future is rosier than it was in the past? It is possible, but it is good to keep in mind that the valuation is not what it used to be.

 

ESTSY has a SP score of 57 which is explained by a performance score of 63 and a risk score of 44. ETSY is a small E-commerce company, but with a lot of potential.  Its 5-year sales growth almost doubled Amazon (as we’ll see next). The company seems to have reached a size large enough to reach a certain threshold of profitability as we see the explosion of the EPS in the last year. Without a surprize, the company has a growth score in the top of our database with a score of 93.

 

The current operating value (COV) of ETSY multiplied by 10 since 2016 showing that the company created substantial tangible value during this period. The share price exploded by 20 during this period. The difference between the share price and the COV is explained by the increased expectations about the company. Back in 2016, investors probably had low expectations. The expectations increased given the extraordinary results in the pandemic environment,

 

Amazon has a SP score of 64 which is explained by a performance score of 76 and a risk score of 40. Amazon, the McDonald of E-commerce, is the largest and most known e-commerce company in the world. This monster is getting bigger and bigger every year. The company has one of the highest, if not the highest, revenue of our entire database, which includes Canadian, U.S. and ADR stocks, as shown by the 100 percentile.

 


The NOPAT (orange line) and the share price (blue line) touched themselves in 2019 and again in 2021 showing lower valuation based on historical figures.  The EVA (green line) increased substantially since 2020 showing robust value creation by Amazon during the pandemic.

 

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

These 11 growing companies from the S&P 500 are becoming increasingly attractive

What are we looking for?

U.S. equities with improving valuations and fundamentals.

We look for a negative three-month price-to-earnings (P/E) ratio and a positive three-month current operating value (COV) change to discover stocks with an attractive signal. A divergence in these metrics implies paying less now for more value than just three months ago.

The screen

We screened Standard & Poor’s 500 stocks focusing on the following criteria:

· Three-month price-to-earnings (P/E) change lower than 5 per cent. We want a company with downtrending valuation;

· Positive three-month current operating value (COV) growth. We want a company with improving fundamentals. The COV is based on discounted cash flow with no growth. The parameters are determined automatically by our platform. It is an approach to evaluate the minimum value of a business;

· Three-month sales growth higher than 4 per cent. We want a growing company;

· Economic performance index (EPI) higher than 1.25. This is the return on capital divided by the cost of capital. A value higher than one demonstrates a company’s ability to create value for its shareholders.

For informational purposes, we have also included the P/E ratio, three-year median P/E ratio, one-year price return, market capitalization and dividend yield. Please note that some ratios may be reported as of end of the previous quarter.

 

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).

TICKER NAME PRICE MKT. CAP ($MIL) P/E CH. 3M (%) COV GRTH (%) 3M SALES GRTH. (%) EPI P/E P/E (3Y MEDIAN) DIV. YIELD (%) 1Y PRICE RTN. (%)
NFLX-Q Netflix, Inc. 535.98 237645 -23.3 4.3 5.6 1.6 63.1 84.6 N/A 2.0
NKE-N Nike, Inc. Class B 161 254219 -17.7 8.9 15.8 2.6 44.2 46.3 0.7 66.9
ETSY-Q Etsy, Inc. 195.09 24549 -11.5 3.8 18.7 2.1 50.3 63.5 N/A 86.6
ABMD-Q Abiomed, Inc. 324.77 14703 -7.9 0.9 4.3 1.6 65.0 62.0 N/A 22.8
FDX-N Fedex Corporation 296.4 78647 -7.0 4.3 6.7 1.4 15.2 26.5 1.0 89.7
AMZN-Q Amazon.com, Inc. 3719.34 1874547 -6.9 5.6 8.6 2.4 69.4 77.8 N/A 19.8
ABT-N Abbott Laboratories 119.74 212756 -6.1 17.0 7.9 1.6 37.3 52.2 1.5 28.6
PKI-N Perkinelmer, Inc. 153.96 17254 -5.9 35.7 17.3 2.7 16.0 38.7 0.2 47.3
QCOM-Q Qualcomm Inc 141.43 159674 -5.7 6.1 10.2 2.2 19.9 25.7 1.9 54.9
CINF-Q Cincinnati Financial Corpora 118.87 19138 -5.3 94.8 30.9 2.6 6.2 13.8 2.1 69.6
CDNS-Q Cadence Design Systems, Inc. 138.5 38540 -5.2 2.6 4.4 1.5 58.0 43.2 N/A 39.8

What we found

The leading streaming service, Netflix Inc. had the largest P/E decline in the past three months while registering 4.3 per cent growth in its COV. Many players have joined the streaming party over the past few years: Amazon Prime, Disney+, HBO and many others. But Netflix still has the largest content library and continue to fuels it with aggressive investments by acquiring or developing new series and movies.

The company spent US$11.8-billion on its content last year alone despite COVID-19 disruption in the film industry. Since 2018, Netflix’s gross margin has increased by 1 per cent each year, meaning a dollar spent on content has produced more and more additional revenue. As the saying goes: Content is king.

The multinational sporting goods company Nike Inc. had a strong year as consumers rushed to buy sports equipment during the pandemic. In its most recent quarter, the company again beat analyst estimates with diluted earnings of 93 U.S. cents a share versus 51 U.S. cents expected.

Over time, Nike has allied itself with many professional athletes who have contributed to the brand’s recognition. This recognition by consumers can be seen in the EPI of 2.6. Customers are potentially willing to pay more for Nike’s products than competing ones, which creates value for its shareholders. The company’s robust short-term results forced our algorithm to readjust its assumptions resulting in a 8.9-per-cent increase in the COV in just there months.

Etsy Inc. and Amazon.com Inc. have similar profiles. Etsy connects buyers and sellers, and offers mostly handmade and vintage items on its platform, while Amazon follows the equivalent process, but with a much wider variety of products. Amazon also has a huge division offering cloud computing services.

Both companies have benefited from the shift in consumer habits toward e-commerce. Is their growth borrowed or has the pandemic accelerated the transition to online shopping?

Close to a year and half after the start of the pandemic, Etsy’s three-month sales growth of 18.5 per cent and Amazon’s 8.5 per cent expansion show no signs of going backward. But both companies are also selling below their historical P/E ratios: 50.3 today for Etsy, versus 63.5 historically, and 69.4 for Amazon, versus 77.8 in the past. The lower valuations may indicate the market is not convinced growth can continue at the rates seen in recent years.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Anthony Ménard is an investment analyst at Inovestor Asset Management.

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Number Cruncher Extra – Stella-Jones, Alimentation Couche-Tard & Metro

In our last Number Cruncher we looked for stocks that don’t attract attention. We managed to find Stella-Jones (SJ), Alimentation Couche-Tard (ATD.B) and Metro (MRU) as potential candidates. In Number Cruncher extras, we use our software Stockpointer to reveal more insights about our picks.

Let’s start with SJ

SJ is identified by our system as a quality stock. The company has achieved stable return on capital with a large spread between its return on capital and cost of capital. The company also generated meaningful growth as sales and EPS grew by 16.4% and 10.3% respectively in the last 5-year.

 

The company still trades around the same price then 5 years ago despite higher EPS impliying a cheaper valuation. While the slowdown in the share price could be rational as the lumber prices should come back to earth, the share price stagnation over this period of time is surprizing considering the performance of the company.

 

ATD.B is also identified as a quality company by our software. The small momentum score reflects the hard start to the year as mentionned in the Number Cruncher. Sales are heavily down year-over-year, but the EPS accelerated to 34.4% compared to its 5-year trend of 25.9%. The lower sales came from lower gasoline revenues, but the margin improvements mitigated the lower gasoline volume.

 

The company NOPAT and EVA improved significantly in the last year. The share price seems to have trouble passing the $45 mark. The market is cautious with oil-related companies. ESG investments are increasingly popular potentially putting pressure on energy-focused companies. The recent green bond issuance combined with the last year great performance could help the stock to go beyond $45.

 

 

Metro has a similar profile than ATD.B, a great company with long-term growth, a decent valuation, but with poor momentum. Sales grew below its 5-trend, but the long-term trend incorporates the acquisition of Jean Coutu, a well-known drugstore in Quebec. The beta of 0.14 combined with its low risk score of around 20 demonstrates how little risky the company is.

 

if we compare the performance and risk score to peers, the company seems to be a solid pick in terms of both performance and risk.

 

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