Number Cruncher Extra

Number Cruncher Extra – Strategy focuses on quality, profitability in the oil patch

As mentioned, in the Globe and mail article – Canadian Natural Resources Ltd (CNQ) seems to reflect improving and promising performance. However, it is important to note that the EVA is still negative, meaning CNQ is still not adding value to its shareholders and this is due to the company’s high cost for raising capital. Although that difference is decreasing (due to a greater increase in profits than an increase in capital costs), it is not yet eliminated, hence why CNQ is still risky (given by the 51% risk score seen on the Scorecard) and signals an overall neutral outlook.

Fundamental outlook is neutral even though performance score is high because the risk score is also high
Risk score is 51%

On the other hand, for a more sustainable investment pick – lets look at Parex Resources (PXT). Apart from the reasons mentioned on the Globe and Mail article, PXT has an attractive scorecard. First, the positive outlook signal! This signal is due to the high score of 65% made up from a high-performance score and a low risk score. The stock rose by 7.24% as seen in the screener however it is still undervalued (this is given by the FGV and the P/IV graphs)

Intrinsic Value crosses the price line indicating an undervalued stock
The FGV is negative indicating a discounted stock valuation.
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Number Cruncher Extra – These 15 U.S. stocks are creating shareholder wealth – and here’s how we found them

In this week’s filter created for The Globe and Mail, we screened for wealth creating US stocks by using the following criteria:

We screened the S&P 500 by focusing on the following criteria:

  • Market capitalization of more than US$10-billion;
  • Positive 12-month change in the economic value-added (EVA) metric – a positive figure shows us that the company’s profit is increasing at a greater pace than the cost of capital. The EVA is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses;
  • Economic performance index (EPI) of more than one and a positive EPI 12-month change. This is a key criterion as it represents the ratio of return on capital to cost of capital. An EPI of more than one indicates that the company is generating wealth for shareholders – for every dollar invested into the company, more than one dollar is generated in returns;
  • Free-cash-flow-to-capital ratio greater than 5 per cent. This ratio gives us an idea of how efficiently the company converts its invested capital to free cash flow, which is the amount left after all capital expenditures have been accounted for. It is an important measure because it gives us the company’s financial capacity to pay dividends, reduce debt and pursue growth opportunities. We are always looking for a positive ratio and more than 5 per cent is excellent.
  • Future-growth-value-to-market-value (FGV/MV) between 40 per cent and minus 70 per cent. This ratio 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;
For subscribers to StockPointer, you can  select the link below and adjust the screener to your liking

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