Category

Number Cruncher

Fifteen U.S. stocks to play defensively amid the latest market volatility

In this week’s filter created for The Globe and Mail, we screened for U.S stocks that can act defensively amid the recent volatility.

Last Friday, the U.S. yield curve inverted, causing some panic in the stock market. On Monday, the curve stabilized but still remained inverted, prompting caution from investors. An inversion, resulting from uncertain economic growth, is often seen as a leading indicator of recession. In order to protect themselves, investors may choose to re-allocate some of their assets to non-cyclical sectors, which act defensively during market volatility. Today we look into two of them: utilities and telecommunications. We screened the U.S. universe by focusing on the following criteria:

  • Market capitalization greater than US$10-billion;
  • 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 is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses;
  • Positive 12-month change in the economic performance index (EPI) and a current EPI greater than one – this ratio is the return on capital to cost of capital;
  • Future-growth-value-to-market-value ratio (FGV/MV) is between 40 per cent and minus 70 per cent. We chose this range to eliminate stocks that trade at an exaggerated premium or discount because that would increase the risk. 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.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

U.S. stocks with unsustainable dividends

In this week’s filter created for The Globe and Mail, we screened for U.S. stocks with unsustainable dividends

Depending on an individual’s investment strategy, a large part of portfolio returns may significantly depend on dividends. Hence, it is valuable to be mindful of companies that may cut their dividends in the future due to unsustainable dividend yields. Those are companies we may want to avoid. We will do that by screening for companies that are struggling to cover their costs and whose profits have been declining over the past couple of years, but who are still raising their dividend yields. We screened the U.S. and American depositary receipt (ADR) companies for unsustainable dividends using the following criteria:

  • Market capitalization greater than $1-billion;
  • Negative 12-month and 24-month change in the net operating profit after tax (NOPAT) metric – 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;
  • Positive one-year dividend growth and a dividend yield greater than 3 per cent;
  • Economic Performance Index (EPI) less than one. This is the ratio of return on capital to cost of capital, representing the wealth-creating ability of the company. A ratio above one is key for sustainable investment opportunities;
  • Free-cash-flow-to-capital ratio. 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, but for this screener we will focus on a ratio below 5 per cent.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

Strategy focuses on quality, profitability in the oil patch

In this week’s filter created for The Globe and Mail, we screened for  Canadian energy stocks with improving fundamentals.

With oil prices on the rise in 2019, and energy stocks making up a notable proportion of the Canadian market, a large part of the gains on the S&P/TSX Composite Index so far are thanks to the energy sector. Today we look for improving company fundamentals to see whether the recent price bump for many of these stocks is justified by their operations. We screened the S&P/TSX energy sector for quality companies by using the following criteria:

  •  Market capitalization greater than $1-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 (NOPAT) minus capital expenses;
  •  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;
  •  Future growth value/market value (FGV/MV) between minus 50 per cent and 50 per cent, 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.
  •  Free-cash-flow-to-capital ratio. 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.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

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;

Log in to you account to get additional information or to modify the original screener

These 17 TSX stocks are creating shareholder wealth – and here’s how we found them

In the filter created this week for The Globe and Mail, we screened for Canadian wealth creators with steady cash flows

So far this year, the Canadian market has been doing fairly well and recovering from the sharp December pullback. The recent rebound makes it as good a time as any to look for Canadian stocks that have a sustainable performance and are trading in an attractive price range. We screened the Canadian universe by focusing on the following criteria:

  • Market capitalization of more than $1-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 calculates the return on capital to cost of capital. An EPI of more than one indicates that the company is generating wealth for the 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.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

U.S. dividend stocks: Screen puts profitability front and center

In the filter created this week for The Globe and Mail, we screened for Defensive and Dividend-paying US-listed stocks.

The defensive nature of value investing makes it a go-to strategy during an economic or market downturn. Today, I screened Quality U.S. listed stocks that also pay a solid dividend, using similar guidelines as those in our article two weeks ago that focused on the Canadian market.

  • Market capitalization greater than US$1-billion;
  • Positive three-month and 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 is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses;
  • Positive 12-month change in the economic performance index (EPI) and a current EPI greater than one – this ratio is return on capital to cost of capital;
  • Average annualized five-year return on capital (ROC) must be greater than 10 per cent;
  • Future-growth-value-to-market-value ratio (FGV/MV) is between 40 per cent and minus 70 per cent. The range was selected to eliminate stocks that are at an exaggerated premium or discount as that would increase risk. 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;
  • Dividend yield greater than 2 per cent.
Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.


								 

							

These 12 defensive TSX stocks combine value and quality

In the filter created this week for The Globe and Mail, we screened for Defensive TSX stocks that combine value and quality

The defensive nature of value investing makes it a go-to strategy during an economic or market downturn. Today, I look for value companies that are not necessarily trading at a discount but rather at a reasonable price, what we call “quality” investing. We are screening the Canadian market with an emphasis on quality companies – those that perform defensively compared with others, regardless of market volatility.

We screened the Canadian universe by focusing on the following criteria:

  • Market capitalization greater than $1-billion;
  • Positive one-year return (as of last month’s end);
  • 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 is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses;
  • Positive 12-month change in the economic performance index (EPI) and a current EPI greater than one – this ratio is the return on capital to cost of capital;
  • Average annual return on capital (ROC) over five years must be greater than 10 per cent;
  • Future-growth-value-to-market-value ratio (FGV/MV) is between 40 per cent and minus 70 per cent. The chosen range was selected to eliminate stocks that are at an exaggerated premium or discount as that would increase the risk. 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.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

Twelve quality U.S. health care stocks for market uncertainty

In the filter created this week for The Globe and Mail, we screened for Quality US-listed Health Care companies

The health care industry is viewed as a defensive sector and as a hedge during market uncertainty. Today we look for quality U.S.-listed companies in that sector. To do that, we screened the U.S. health care universe, including American depositary receipts, by focusing on the following criteria:

  • Positive three-month and 24-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 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) – the ratio of return on capital to cost of capital – must be greater than one;
  • Average five-year return on capital (ROC) must be greater than 10 per cent and the 12-month change in return on capital must be positive;
  • Future growth value/market value (FGV/MV). 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.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

Sizing up the wealth creators among U.S. technology stocks

In the filter created this week for The Globe and Mail, we screened for Wealth creators in the U.S. information technology sector.

Signals indicating a nearing bear market have been encircling us for months. In periods such as these, fundamental analysis is key; we’re looking for real quality that can protect one’s portfolio. With U.S. technology stocks taking a particularly big hit recently, I decided to make that sector our focus. We screened the U.S. information technology sector by 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/share, and EVA/share growth 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;
  • Future growth value/market value (FGV/MV) and its 12-month change. 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;
  • 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.

Read more in this article written by Noor Hussain, Analyst & Account Executive at Inovestor Inc.

 

Thirteen US Energy Stocks That Stand Out

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.