Category

Screeners

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.