Category

Number Cruncher Extra

Seven Growth Stocks That Are Reasonably Priced

What are we looking for?

Growth stocks outperformed value by a huge margin over the past 10 years. And while higher valuations are often seen as problematic for growth companies, let’s put that into perspective. Today, we look for U.S. and Canadian large caps with a growth-at-a-reasonable-price (GARP) tilt.

The screen

We screened U.S. and Canadian companies focusing on the following criteria:

· Market capitalization higher than $25-billion;
· Economic performance index (EPI) higher than 2.5 – this is the ratio of return on capital to cost of capital. We look for businesses with a sizable risk-adjusted return on capital;
· StockPointer (SP) Performance Score of more than 75. The score, which can range between zero and 100, mainly considers risk-adjusted return on capital and free cash flow per share;
· PEG ratio below three – this is our growth-at-a-reasonable-price (GARP) factor, which considers valuation and growth. It uses the price-to-earnings ratio divided by the five-year earnings growth mean (while mean is similar to average, this method puts more weight on extreme values)
· 12-month sales growth higher than 4 per cent – we are looking for a company showing sales momentum in the past year;
· 24-month growth in net operating profit (NOP) of more than 10 per cent. We want a company showing strong improvement of its operations in the past two-year period;
· Most recent return on capital lower than 50 per cent – we exclude companies with an unsustainable ROC (a really high ROC is often temporary, owing to a short-term boost from unusual items);

For informational purposes, we have also included recent price-to-earnings ratio, five-year earnings growth mean, dividend yield, one-year price return and recent stock price. Please note that some ratios may be 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. 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).

What we found

TICKER Company RECENT PRICE ($) MKT CAP ($MIL.) NOP CH. 24M (%) SP PERF. SCORE RTN ON CAPITAL (%) EPI SALES CH. 12M (%) PEG Ratio P/E Ratio 5Y EPS Growth Mean (%) 1Y PRICE RTN. (%) DIV. YIELD (%)
HD-N Home Depot, Inc. 266.71 287100 18.8 91.0 38.6 3.8 8.5 1.5 24.4 16.2 12.4 2.3
INTU-Q Intuit Inc. 314.68 82390 50.8 90.5 27.2 2.6 13.2 1.1 45.5 40.0 22.7 0.8
CLX-N Clorox Company 207.25 26120 14.1 86.0 23.3 3.8 8.2 2.6 28.2 10.9 41.0 2.1
FAST-Q Fastenal Company 43.23 24820 14.4 86.0 26.9 2.7 5.3 2.8 29.6 10.5 16.4 2.3
CSU-T Constellation Software Inc. 1398.59 29640 37.4 82.5 30.3 3.8 15.3 2.8 65.4 23.3 7.0 0.4
ORLY-Q O’reilly Automotive, Inc. 436.6 31990 24.5 77.7 29.2 3.4 9.4 1.0 19.5 19.9 -0.1 0.0
TROW-Q T. Rowe Price Group 126.66 28680 23.7 77.2 28.1 2.6 6.5 1.2 14.2 12.2 8.3 2.8
CPRT-Q Copart, Inc. 110.36 26040 51.8 77.0 27.5 2.7 8.0 1.3 37.6 28.0 33.1 0.0

The top three on our list using this approach, ranked by SP performance score, are Home Depot Inc.Intuit Inc. and Clorox Co.

Home improvement retailer Home Depot is an excellent example of how long-term growth can generate massive returns for investors. It has the highest return on capital and performance score of our list. The PEG ratio is in the middle of the pack and this company is also of premium quality based on its long-term historical growth. This more than justifies the higher PEG ratio than some others on our list.

Software developer Intuit Inc. has a P/E of 45.5, but the valuation is one of the cheapest if we consider the PEG ratio. This case illustrates that a P/E ratio can mean nothing if it is not compared with historical growth statistics. Intuit premium valuation is supported by its superior SP Performance Score, its 12-month sales growth and its 24-month NOP growth.

Clorox Co., a maker of disinfectant products and other household items that have been in high demand during the pandemic, has had a massive tailwind in the past three quarters. (Its fiscal first-quarter earnings, reported Monday, topped Wall Street’s forecasts, with sales up 27.2 per cent compared with the year-ago period.) In the short term, we can expect health measures to contribute to sales even if a vaccine makes it to the market. Its high EPI can be attributed to its strong retail brands and market dominance. More than 80 per cent of the company’s sales are generated from brands that hold the No. 1 or No. 2 market share positions in their respective categories. While the return on capital is lower than other candidates, that is a small price to pay for its incredible stability.

Investors are advised to do further research before investing in any of the companies shown here.

For more details about these growth stocks, please subscribe the Inovestor for Advisors platform for free here.

Christian Godin is a portfolio manager at Inovestor Asset Management.

Signs of Elevated Risk in Lofty Tech Stock Valuations

What are we looking for?
The tech rally shouldn’t be a surprise considering this year’s work-from-home environment. The health and safety measures put in place by government authorities around COVID-19 forced consumers to change their habits to include more tech products in their lifestyle. But do tech stocks justify their lofty valuations?

For perspective, we compare today’s results with a similar screen of tech stocks we did two years ago (tgam.ca/IT-Inovestor).

The screen
Here is a link for our screener

We screened U.S. tech companies focusing on the following criteria:

·Positive 12-month change in the economic value-added (EVA) metric – a positive figure shows us that the company’s profits are increasing at a faster and greater pace than the costs of capital. The EVA gives us a sense of how much value this stock is adding for shareholders and is calculated by taking the net operating profit after tax and subtracting the capital expense;

·Positive EVA and EVA growth on a per-share basis over 12 months;

·Economic performance index (EPI) – the ratio of return on capital to cost of capital – must be greater than one;

·Average five-year return on capital must be greater than 10 per cent and the 12-month change in return on capital must be positive (not shown);

·Future growth value/market value (FGV/MV) and the 12-month change in FGV. The FGV/MV 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;

·Beta – this gives us an idea of how closely the company mimics the market’s fluctuations. A beta of less than one would indicate the stock is less volatile than the market at large.

For informational purposes, we have also included recent stock price, dividend yield and one-year return (as of last month’s end). Please note that some ratios may be reported at end-of-previous quarter.

TICKER Company RECENT PRICE ($) MKT CAP ($MIL.) 12M EVA CHG. EVA/S Ch. 12M EVA per Share EPI Beta FGV Ch. 12M DIV. YIELD (%) 1YR PRICE RTN.(%) FGV ($M) ROC (Avg 5 Y) FGV / MV
ZM-Q Zoom Video Communications, I 482.23                        136,191 N/A N/A 0.81 3.8 0.5 78.7 0.0 526.4              133,352 12.4 97.9%
VEEV-N Veeva Systems Inc Class A 275.56                           41,798 6.7 0.2 0.82 1.6 0.9 38.3 0.0 80.6                38,458 15.1 92.0%
MSCI-N Msci Inc. Class A 348.16                           29,308 1.0 0.1 5.54 2.4 1.0 25.4 0.9 57.7                24,021 18.7 82.0%
ADBE-Q Adobe Inc. 478.99                        232,045 35.8 1.8 5.29 2.4 0.8 32.7 0.0 73.0              187,498 17.0 80.8%
TYL-N Tyler Technologies, Inc. 350.72                           14,302 14.4 0.4 2.59 1.5 0.7 36.6 0.0 34.8                11,158 14.8 78.0%
MSFT-Q Microsoft Corporation 206.19                     1,580,000 30.0 0.7 2.89 1.9 0.9 25.9 1.1 50.4          1,149,583 13.3 72.8%
CDNS-Q Cadence Design Systems, Inc. 105.32                           29,876 161.3 1.8 2.21 1.9 1.0 11.4 0.0 60.6                19,209 12.2 64.3%
JKHY-Q Jack Henry & Associates, Inc 161.56                           12,454 11.2 0.2 2.90 2.1 0.9 13.6 1.1 11.6                  7,933 21.5 63.7%
UI-N Ubiquiti Inc. 165.26                           10,998 72.9 1.7 5.26 5.2 0.9 4.9 1.0 39.8                  6,727 34.8 61.2%
LOGI-Q Logitech International S.a. 77.78                           13,558 194.5 1.6 2.16 2.8 0.5 13.5 1.1 90.8                  6,155 13.4 45.4%
GRMN-Q Garmin Ltd. 94.93                           18,398 79.1 0.8 2.52 1.8 0.9 6.3 2.6 12.2                  7,649 14.4 41.6%

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).

What we found

The current market environment for tech stocks is more challenging than in late 2018: We see higher valuations and decreasing EVA per share growth compared with our previous screen. More companies show an extreme FGV/MV, signalling elevated risk, and the average EVA growth is 91 per cent, compared with 146 per cent two years ago.

Zoom Video Communications Inc. has been one of the big winners during this upheaval. The communications technology company certainly has a good EPI, while its three-month sales growth (not shown) is an incredible 190.4 per cent. That said, its EVA per share of 81 US cents for a stock trading in the US$480 range definitely doesn’t support the current valuation.

Computer software company Adobe Inc. is one of two names on this list that made our screen two years ago (the other was Jack Henry & Associates). Adobe’s valuation based on the FGV/MV is lower than in 2018 (80.8 vs. 84.5). The company also has the second-highest 12-month change in EVA per share on our list. This indicates a strong improvement of its profitability. In this case, the valuation can be justified by strong financial performance and doesn’t seem disconnected with its fundamentals based on historical data.

Investors are advised to do further research before investing in any of the companies shown here.

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

 

Number Cruncher Extra: Home Depot, O’Reilly Automotive & Tractor Supply Company

In our last Number Cruncher we discussed how Home Depot (HD), O’Reilly Automotive (ORLY) & Tractor Supply Company (TSCO) could be good candidates to take advantage of the economic recovery. Now, we’re going to look at these stocks with our Stockpointer software.

Here is the screener we used to find these incredible companies

Let’s start with Home Depot

 

the company has a high score of 68 in our system. It did not experience significant sales growth, but it did increase the most important metric, the EPS. its performance spread continues to increase, which means that the company is increasing its return on capital while maintaining adequate risk for the return on capital achieved

 

Home Depot has an incredible track record which makes it a high quality stock. It is first in all categories except for the return on equity which can be ignored as the company has negative equity due to the many dividends paid and share buybacks that have been made.

O’reilly Automotive has a similar profile than Home Depot, but with a bigger focus on growth specially in the short-term. It has a solid score of 60 with a higher risk perceived by our software. On the other hand, the beta of 0.92 indicates that the stock should be as much volatile than the market.

 

The growth of O’reilly Automotive is impressive because of its magnitude, but also due to its stability. Sales, operating profit and net income were up every year and stock has been repurchased every year also. There is approximately 25% less share outstanding than in June 2016.


Tractor Supply Company as a strong score of 62 while being identified as a growth, quality and low risk stock. The performance spread is increasing at a rapid pace, specificly 68.3% (relatively to its past performance spread) which is spectacular. Unsurprisingly EPS are up 29.8% year-over-year.

The company has a strong short-term momentum, but we cannot conclude it is the only reason. There is a clear break in the growth of its net operating profit in 2018. In March 2017, the company changed its Chief Financial Officer. It is not known if this decision alone made a difference, but it could be one of the reasons.

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

Number Cruncher Extra: Alimentation Couche-Tard, Lassonde & Metro

In our last Number Cruncher, we covered Alimentation Couche-tard, Lassonde Industries and Metro. We will go into more detail about these titles with our software.

Here is the screener we used in our last Number Cruncher that you can play with. You also can subscribe the Inovestor for Advisors platform for free here

Let’s start with Alimentation Couche-Tard:

The company is solid despite its decrease in last year-over-year sales due to the decrease in gasoline sales. The increase in sales occurs organically, but also by acquisition, which explains its strong growth. The performance spread is also declining, but we will look at it more in detail and see why it is not a problem.

We see that the company has some volatility in its return on capital and that 2015 was a strong year. Although the software shows a decrease in the performance spread, we don’t think this is a cause for concern.


Lassonde had a good quarter and paves the way for a strong year thanks to the pandemic, which is causing consumers to spend more at the grocery store. The company has been able to generate double digits growth in earnings per share despite low single digits sales growth.

When looking at the Future growth value (FGV) of the company, one notices that the company is severely evaluated by the market. The FGV represents the growth portion of the company that an investor buys. In this case, the FGV is negative, so the investor would buy the company at a discount compared to its current activities. The market considers that the company will have a decrease in its growth in the coming years which may not be justified.

Metro has a very high score in our system. In fact, it is the Canadian company with the second highest score across all sectors. The average profit growth of 42% is certainly a reason. The risk is perceived as very low by our software. A large part of this risk is associated with evaluation, so according to our system Metro is cheap when compared to its previous performance.

Looking at the comparables, the company stands out by being the highest value for the Y-axis, which means that it is the best performer. Moreover, it is in the right-hand quadrant, which means that it is relatively inexpensive. GB is a micro cap of $3M and doesn’t have the stability of Metro.

 

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

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.

You can subscribe the Inovestor for Advisors platform for free here

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

5 U.S. banks with solid balance sheets

What are we looking for?

The Canadian banking sector is widely considered to be one of the best and safest banking systems in the world, which explains why Canadians are heavily invested in the six major banks. However, the financial sector, represents 32 per cent of the S&P/TSX Composite Index. To diversify their portfolios, investors might want to consider investing in the U.S. banking sector. In the aftermath of the financial crisis, U.S. banks have become better capitalized, with an increased focus toward a more sustainable business model. Today, we will be looking at five dividend-paying U.S.-based banks with solid balance sheets.

The screen

Our screen of the banks’ subsector of the U.S. financials sector is based on the following criteria:

Market cap of at least US$10-billion;

-A positive EVA figure. Economic value-added (EVA) is a measure of true economic profit created by a company. EVA is calculated by subtracting the Capital charges from the NOPAT (Net Operating Profit After Taxes). The higher the economic value-added is, the more value a company is generating for its investors;

-An EPI figure of at least one. The economic performance index (EPI) is the main indicator to identify how much wealth is redistributed to the shareholders. The higher the figure, the better, and a negative EPI means that the company is not covering its costs of capital;

-Dividend yield of at least 3 per cent. We are looking for banks that consistently share their profits with the shareholders;

Positive earnings per share. We are looking for profitable companies only;

-A price-to-intrinsic value of between 0.5 and two. Price/IV is the price of the stock divided by the intrinsic value of the stock. We are avoiding overvalued and value trap stocks.

-Long term debt-to-equity ratio below two: We are looking for banks with solid bank sheet and low long term debt;

-Current SP score of at least 55: The SP Score is a proprietary scoring system based on StockPointer’s model. It’s a 12 factors algorithm with a focus on quality and value. This metric represents the overall performance of a company by considering multiple risk and performance factors. A high score indicates a high quality stock trading at a reasonable price. (The score range between zero and 100)

For informational purposes, we have also included recent stock price and one-year return. Please note that some ratios may have been reported at the end of the previous quarter.

What we found

TICKER COMAPNY RECENT PRICE ($) EVA ($MIL.) MKT CAP ($MIL.) EPI LT DEBT DIV. YIELD (%) Price / IV EPS CURRENT SP SCORE 1YR PRICE RTN.(%) LT DEBT / EQUITY
JPM-N Jpmorgan Chase & Co. 93.25 1029.82 284090.00 1.00 299344.0 3.89 1.08 8.88 65 -17.48 1.05
USB-N U.s. Bancorp 34.94 1214.38 53215.13 1.15 52298.0 4.73 0.93 3.93 65 -31.55 0.98
NTRS-Q Northern Trust Corporation 75.47 227.54 15700.09 1.16 4142.2 3.58 1.18 6.73 64 -19.68 0.26
DFS-N Discover Financial Services 41.37 806.58 12672.10 1.41 26098.0 4.82 0.67 6.74 68 -47.27 2.06
SYF-N Synchrony Financial 18.51 1178.58 10798.20 1.45 16063.0 5.41 0.54 4.46 58 -42.92 1.49

Five names made today’s list, ranked by market cap, JPMorgan Chase & Co., which shows the highest EPS, has been growing its revenues constantly since 2015. Although the bank’s performance spread (ROC – COC) was negative from 2016 to 2018, it has been positive for the past two years, which is a good indication for shareholders.

U.S. Bancorp is also a big player in the banking sector with a market cap of US$51-billion. The bank has beaten or matched EPS estimates for the past five years. The bank missed its last earnings estimate because of loan defaults related to COVID-19. With a current operating value of US$55.8-billion, the bank is trading at an 8 per cent discount compared with its current market value. At a current price of $35 per share, it’s worth considering adding it to your portfolio.

For more details about JPMorgan and U.S Bancorp stock and performance, please subscribe the Investor for Advisor platform for free

For readers with an Inovestor for Advisors account, Here is the screener we used

Number Cruncher Extra: Viemed Healthcare, Information Services Corporation, Tecsys and More

Today, we will discuss about Canadian small caps that have low debt. This week we had a lot to say about the companies we found in our screener.  Viemed Healthcare (VMD), Information Services Corporation (ISV), Senvest Capital (SEC), Magellan Aerospace (MAL), Tecsys (TCS) and Absolute Software Inc. (ABT) was in our list.

Let’s see the different outlooks from our software:

We added a specific graph or table for each company. We will discuss them below:

Viemed Healthcare

Information Services Corporation

Senvest Capital

Tecsys

Mallegan Aerospace

Absolute Software Corporation

Viemed Healthcare has a strong outlook with a SP score over 60. Recently the score decreased, but by personal experience it is hard for a company to stay above 65 because it is a really strong score. We have growth in sales and earnings per share (EPS) over the long term. The performance spread, the difference between the return on capital and the cost of capital, is positive. It means the company creates value for the shareholders in the long term. The net income is negative on a 1-year basis, but the operating cashflow before considering the change in working capital is higher than last year. we don’t think we should bother with a decrease in last year EPS at this point. The company is also well positioned compared to the other companies of its industry based on the factors comparison table.

Information Services Corporation is at a very high score at 65. The score increased by 2 at it last review which is great specially at this score level. Once again for this company, sales and EPS saw growth. The performance spread score is above 0. The company pays a dividend and the current level is equal to one see in 2015 and 2018 which is not a bad or good sign. The company spends $14M on the dividend each year, but the company free-cash-flow has been 1.5x to 2x this amount in the last 5-year. It seems it can support its dividend easily.

Senvest Capital has the lowest SP score of our group at 53. By looking at the second picture, we can see the NOPAT is volatile. The company reports all their investment results in the income statement and the operating cashflow because of the business definition. This leads to weird accounting in some cases that are not economically meaningful. We suggest the investor to have good knowledge of accounting rules concerning the classification of cashflows and revenue recognition to fully understand the situation of the company. The company is often affected by their investments in the market. However, the company shows good results overall despite the volatility and the uncommon accounting.

Tecsys has a low SP score compared to the others, but there is interesting information about this company. Sales and EPS increased a lot in the last year and the last 5-year. The performance spread is also above 0. The company had great momentum until 2019. The results were a bit disappointing in 2019. The company shows higher volatility in its 5-year result than the others. The company still display characteristics linked to a good company. It has a great return on capital and doesn’t need debt to grow. Its exposition to hospital could lead to higher revenue and profit in the next quarters.

Mallegan Aerospace had a strong decline recently because of the recent turmoil. The company also shows slowing operating profit and the current environment will not help. The industry has a lot of difficulty and it is hard to find good points in the short-term for this company. However, the stock has a moderatly good historic and balance sheet. The lower valuation could be an attractive entry point for the long term investor. There is certainly “blood in the street” as Warren Buffet famously says.

Absolute Software Corporation has a decent score of 58. The company is identified as bad growth by our software. Surely, the operating profit didn’t grow in the last 5 years as seen in the related graph, but the company has some momentum in the last 2 years. It is  possible the company will have good results because of the current environment. Companies had to figure how to work remotely and cyber security is an important part of it.

You can subscribe the Inovestor for Advisors platform for free here

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

7 Consumer Discretionary Companies that Might not Survive the COVID-19 Bear Market

WHAT ARE WE LOOKING FOR?

The S&P500 is down 22.97%, the S&P/TSX is down 24.18% year to date. The COVID19 pandemic is destroying the economy, the Canadian GDP and US GDP are expected to drop significantly. Many businesses are shutting down and laying off employees. Although both the US and Canadian governments are putting in place subsidy programs to support businesses, some of them might not survive this crisis.

Today we will be looking at unprofitable companies with substantial debt on their balance sheet that might not survive the crisis:

 

THE SCREEN

We are looking at North American companies with the following criteria:

  • Long term debt to equity of at least 2. This indicate that the company is highly leveraged and might have a hard time paying back their debt during the crisis
  • Decreasing sales growth over the last 24 months. This indicate that the company was already having trouble before the crisis
  • We are looking for companies with decreasing NOPAT over the last 2 years. This indicate that the company is decreasing the shareholders net pay.
  • A negative EPI: The economic performance index (EPI) is the main indicator to identify how much wealth is redistributed to the shareholders. The higher the better, and a negative EPI means that the company is not covering its costs of capital.
  • Sector: Consumer Discretionary. This sector might be the most impact as consumers will reduce their spending, especially for non-essential products

 

For informational purposes, we have also included recent stock price, dividend and one-year return. Please note that some ratios may be reported at the 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 stocks, U.S. stocks and American depositary receipts).

TICKER COMAPNY RECENT PRICE ($) MKT CAP ($MIL.) LT DEBT SALES CHG. 24M (%) NOPAT CHG. 24M (%) EPI NOPAT LT DEBT / EQUITY DIV. YIELD (%) 1YR PRICE RTN.(%) SECTOR
ASNA-Q Ascena Retail Group, Inc. 0.91 9.08 1924.20 -19.87 -8.45 -1.00 -211.16 211.92 0.00 -93.56 Consumer Discretionary – Retailing
PRTY-N Party City Holdco, Inc. 0.31 28.95 2224.72 -0.96 -16.15 -0.23 -40.55 76.85 0.00 -94.23 Consumer Discretionary – Consumer Durables And Apparel
JCP-N J. C. Penney Company, Inc. 0.27 87.29 4682.00 -10.71 -6.05 -0.03 -12.52 53.64 0.00 -75.84 Consumer Discretionary – Retailing
BBBY-Q Bed Bath & Beyond Inc. 3.94 485.01 3341.41 -6.64 -16.56 -0.19 -75.29 6.89 4.60 -75.22 Consumer Discretionary – Consumer Durables And Apparel
ADNT-N Adient Plc 7.35 688.70 4004.00 -0.66 -11.49 -0.03 -22.13 5.81 0.00 -30.02 Consumer Discretionary – Automobiles and Components
GME-N Gamestop Corp. Class A 2.80 183.40 949.10 -29.90 -35.78 -0.63 -132.84 5.18 0.00 -65.55 Consumer Discretionary – Consumer Durables And Apparel
HMHC-Q Houghton Mifflin Harcourt Co 1.52 189.00 773.18 -1.20 -9.28 -0.51 -89.98 4.09 0.00 -74.14 Consumer Discretionary – Hotels and Leisure

WHAT WE FOUND

Bed Bath & Beyond Inc’s stock is down 90.8% since January 2017 and 68.35% since the start of the pandemic bear market (21 February 2020). With a Long-term debt to equity ratio of 6.25, a decrease in net income in the last 5 years from $957M in 2015 to -137M in 2019, there is a lot of question marks regarding the future performance of the companyWith a long-term debt to equity ratio of 40, J.C. Penney has temporarily furloughed most of their 85,000 employees, including store hourly workers and many corporate staff members. 57% of their revenue depend on their apparels and accessories sales, this will directly affect their earning next quarter, as apparels and accessories are considered non-essential products. The company wasn’t performing well even before COVID19 as the stock is down 96% since 2017.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more information about these stocks, readers can subscribe to the Investor for Advisor platform for free: https://www.inovestor.com/en-CA/store/
The screener is available here for investors with an Inovestor for Advisor account. The debt-to-equity ratio has been calculated manually.

 

If you have any questions about the article, feel free to contact Fares :
falkassmy@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

 

 

 

Number Cruncher Extra: Kirkland Lake Gold, IA Financial Corporation and Toromont Industries

OVERVIEW
In our system, Kirkland Lake Gold, Toromont Industries and IA Financial Corporation have an overall score higher than 60 which implies a positive outlook. These stocks are all clasified as quality because of their long-term track record. All stocks are classified as growth stocks as well because of their high growth in sales and profitability over the last years, but Toromont Industries is also classified as bad value because of its expensiveness determined by its price-to-book  and price/earnings ratio. Kirkland Lake is identified as a low risk stock because of its low beta. In portfolio construction, gold miners are often seen as a great diversification tool because of their low correlation or even negative correlation with the market.

A GOOD PERFORMANCE SPREAD IS KEY
The performance spread is the difference between the return on capital and the cost of capital. A company with high volatility will have a cost of capital higher than a less volatile one. This is why the price/earnings for highly cyclical stocks is often low, the market wants to be rewarded by taking higher risk. A company with high return on capital while maintaining a low cost of capital creates value.

Ia Financial Corporation and Kirkland had times where their cost of capital was higher than their return on capital while it never happened for Toromont Industries. If you are looking at quality, the latter seems the best of the list.


Ia Financial Corporation was slighly destroying value in 2015, but it reversed since. The company generated a return on capital higher than its cost of capital overall, but the company is vulnerable to lower interest rates because of its business in life insurance. Also, a bear market means lower fees from their advisors, This is why IA Financial Corporation is already down more than 50% since the start of the crisis. The company is correctly priced if we consider that it will generate a return on capital of 0% in 2020 and one of 10% in the long-term which should be considered as a conservative scenario.

 


If we look at peers, Kirkland seems affordable because it is at the right compared to the Y axis and produce high value because it is a lot higher than the X axis. That is exactly the kind of stock that you want. On the other hand, we need to be careful because the last 12-month has been incredible for Kirkland. This may overstate the company’s sustainable performance, but it still has a great long-term track record.

 

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

 

Opportunities might arise during bear markets

WHAT ARE WE LOOKING FOR?

From February 20, to March 5, 2020, the S&P 500 was down more than -15%, officially landing in the market correction territory. As the COVID-19 continues to spread in new territories, global supply chains are being disrupted, and companies are readjusting their forecasts. Mainland China is the most impacted with 111,363 confirmed cases and a death rate of 3.7% (as of 09/03/2020). Although we are facing a lot of uncertainty in the global economy and the financial markets, this might be a good opportunity for investors to buy stocks at a discounted price.

Today we will be looking at US fundamentally-sound stocks that are trading at a discount, giving the recent market correction.

THE SCREENER

  • market cap: $1B – we are only looking for large cap companies
  • Current SP Score: A minimum score of 50. The SP Score is a scoring system model, based on a 12-factor algorithm, which focuses on quality and value. The weights for quality and value are 75% and 25%, respectively.
  • Price 20-day Change (%): Stocks that are down at least –15% in the past 20 days. A 15% drop is considered a market correction
  • Increase in NOPAT over 24 months: at least 5% increase in NOPAT over the last 24 months. We are looking for companies that can increase the profitably of the business
  • Positive EVA: We are looking for companies with positive EVA only. Economic Value Added (EVA) is a measure of true economic profit created by a company. The higher Economic Value Added, the more value a company generates for its shareholders.
  • Increase in Sales over the last 24 months: At least a 7% increase in sales over the last 2 years. We are looking for company that can scale and grow the business
  • Dividend yield: At least a yield of 3%. This is an indicator that the company can distribute their profits with the shareholders

 

 

WHAT WE FOUND

We found 10 companies that were potentially affected by the market correction but appear to have strong fundamentals.

TICKER Company RECENT PRICE ($) MKT CAP ($MIL.) CURRENT SP SCORE NOPAT ($) NOPAT CHG. 24M (%) EVA ($) SALES CHG. 24M (%) DIV. YIELD (%) 20D PRICE RETURN(%) 1YR PRICE RTN.(%)
CSCO Cisco Systems, Inc. 39.68 168282.88 57 12558.94 5.70 2178.16 7.19 3.05 -18.80 -22.87
VNO Vornado Realty Trust 52.35 9998.10 56 3717.36 12.19 2109.23 156.51 3.97 -20.95 -20.40
CMA Comerica Incorporated 44.81 6367.30 70 1207.15 6.88 196.67 15.81 3.74 -26.94 -39.57
SNV Synovus Financial Corp. 25.58 3764.29 71 607.47 9.44 241.97 67.08 3.06 -30.05 -26.86
SHLX Shell Midstream Partners Lp 15.1 3522.67 56 602.33 8.54 453.59 7.00 8.36 -24.31 -4.31
MCY Mercury General Corporation 44.31 2452.91 55 320.09 7.14 214.03 13.53 5.16 -17.49 -18.24
EVR Evercore Inc Class A 61.67 2415.98 73 360.46 6.86 221.71 17.08 3.00 -23.93 -27.67
PAGP Plains Gp Holdings Lp Class 12.2 2222.09 63 2304.97 6.24 803.80 26.32 7.28 -24.03 -40.62
GEF-B Greif Class B 37.07 2197.23 53 483.68 6.44 291.95 29.21 3.71 -24.47 -11.99
CADE Cadence Bancorporation Class 12.06 1538.83 56 217.18 7.29 4.67 99.04 3.86 -25.88 -29.36

 

Cisco Systems is one of the global players in the Network and Cloud industry. They have been increasing their revenue year-over-year as well as their operating margins. One of the strategies put in place to boost revenues is to offer new products targeted to small businesses This could be a game changer, as we see the rise of small businesses in North America. Although the company beat Q2 earning, the stock dropped due to fears of COVIS-19, as 40% of their sales is outside the US. Given its potential, the stock price has been trading at the same price level as February 2018 – this might be a good buying opportunity.

Vornado Realty Trust is a real estate investment trust formed in Maryland, with its primary office in New York City. The company invests in office buildings and street retail in Manhattan. They have been constantly distribution a stable dividend yield of around 3.9%. The company has been increasing the net profit margin, ROE and ROA over the last 3 years. They are the largest owner of LEED-certified property in the US, with more than 27 million square feet of LEED-certified properties. With a solid balance sheet and a strong market presence in the US, Vornado might be trading at a discount given a rent drop of -21% last 20 days

 

For more details about Vornado Realty Trust and Cisco Systems, performance, readers can subscribe to the Investor for Advisor platform for free: https://www.inovestor.com/en-CA/store/