Category

Number Cruncher

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.

Stock screen for U.S. wealth creators factors in volatility

 

In the filter created earlier this week for The Globe and Mail, we screened for US wealth creators with low volatility by using the following criteria for the S&P 500 universe:

  • A market capitalization of US$1-billion or more;
  • A beta of one or less. A stock with a beta less than one is considered less volatile than the market;
  • A return on capital greater than or equal to 12 per cent, reported as of last quarter’s end;
  • A cost of capital less than 10 per cent, reported as of last quarter’s end;
  • A positive sales change over 12 months and 24 months;
  • A positive free-cash-flow-to-capital ratio. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, distribute or increase dividends, reduce debt, etc.;
  • A dividend yield greater than 1.75 per cent;
  • A positive share-price return over one year.
  • Future-growth-value-to-market-value (FGV/MV) ratio. 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.

In the volatile energy sector, these 13 stocks are generating shareholder wealth

 

In the filter created this week for The Globe and Mail, we screened for Canadian energy stocks creating value for shareholders by using the following criteria:

  • A return on capital equal to or greater than the market average of 5 per cent;
  • An economic performance index change greater than or equal to zero over 12 months. The EPI is the ratio of return on capital to cost of capital. It gives shareholders an idea of how much return is generated from each dollar spent;
  • Positive change in economic value-added (EVA) over 12 and 24 months. This measures the momentum of the wealth-creating ability of the company.  EVA is the net operating profit after tax, or NOPAT, minus capital charge (cost of capital times the amount of invested capital);
  • A positive sales change over 12 months.

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

Stock hunting in this bull market’s best performing sector

 

In this week’s filter created for The Globe and Mail, we screened for stocks within the greatest contributing sector to the S&P 500 bull market by using the following criteria:

  • Positive change in economic value-added (EVA) over three months and 12 months. This measures the momentum of the wealth-creating ability of the company. Note that EVA is the net operating profit after tax, or NOPAT, minus capital charge (cost of capital times the amount of invested capital);
  • A return on capital greater than 10 per cent, reported as of last quarter’s end;
  • A positive free-cash-flow-to-capital ratio. This ratio gives us a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, distribute or increase dividends, reduce debt, etc. We are looking for a ratio greater than 5 per cent, which is excellent;
  • A dividend-yield greater than 1.5 per cent;
  • A positive share-price return over one year.

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

Seeking Canadian wealth creators, with an eye on volatility

 

In the filter created this week for The Globe and Mail, we screened for high quality Canadian stocks with low volatility by using the following criteria:

  • A market capitalization of $500-million or more;
  • A beta of one or less. A stock with a beta less than one is considered less volatile than the market;
  • A return on capital greater than or equal to 12 per cent, reported as of last quarter’s end;
  • A cost of capital less than 10 per cent, reported as of last quarter’s end;
  • A positive sales change over 12 months and 24 months;
  • A positive free-cash-flow-to-capital ratio. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, distribute or increase dividends, reduce debt, etc. A positive figure is what we are looking for. (Note: Some FCF/capital ratio data were not available.)
  • Dividend-paying companies with a payout variation greater than or equal to zero in each of the past four years (not shown);
  • A positive share-price return over one year.

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