Category

Screeners

Thirteen defensive U.S. health care and consumer staples stocks

In this week’s filter created for The Globe and Mail, we screened for Thirteen defensive U.S. health care and consumer staples stocks.

Looking back at May, it was the worst month so far in 2019 for the markets. The U.S.-China trade war spiralled deeper early in the month, with U.S. President Donald Trump raising tariffs on US$200-billion worth of Chinese products and China retaliating by setting tariffs on US$60-billion of American goods. Last week, the markets tumbled as the geopolitical mess worsened due to escalating trade tensions. In addition, last Thursday Mr. Trump threatened Mexico with a new wave of tariffs, which will begin on June 10. During this period of extended uncertainty, non-cyclical sectors hold up better due to their defensive characteristics. Today, we will screen U.S. health care and consumer staples stocks to identify some companies with solid operations and revenues that may be able to withstand this trade-war storm. We screened the U.S. stock universe by focusing on the following criteria:

  • Market capitalization greater than US$10-billion;
  • A 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;
  • A 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;
  • A future-growth-value-to-market-value ratio (FGV/MV) of between 40 per cent and negative 70 per cent. We chose this range to eliminate stocks that trade 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.
  • Free-cash-flow-to-capital ratio. This metric 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.

Eleven U.S. energy stocks poised to withstand oil-price volatility

In this week’s filter created for The Globe and Mail, we screened for U.S energy companies that can withstand magnified volatility.

Market speculation around production cuts by the Organization of Petroleum Exporting Countries and the impact of U.S. sanctions against Iran and Venezuela have been among the factors driving recent oil-price volatility. Today, we will identify U.S. energy companies whose healthy operations and strong fundamentals make them solid bets to withstand the heightened unpredictability. We screen the S&P 500 energy sector for quality companies by using the following criteria:

  • Market capitalization greater than US$5-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 metric 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.
  • Economic performance index (EPI), which is the ratio of return on capital to cost of capital, representing the wealth-creating ability of the company. Anything above one is favourable; the higher the figure the better.

Twelve established growth stocks poised for further gains

In this week’s filter created for The Globe and Mail, we screened for established growth stocks poised for further gains.

In the late stage of the business cycle, such as many argue we are in now, it is important for growth investors to improve their downside protection without sacrificing potential upside returns.

Today we look for growth stocks supported by favourable fundamentals that should allow them to capture further gains in a rising market.

We screened Inovestor’s U.S. universe of stocks by focusing on the following criteria:

  • Market capitalization greater than US$10-billion;
  • 12-month change in the economic value-added (EVA) metric greater than 10 per cent – 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 (NOPAT) minus capital expenses;
  • One-year return of at least 10 per cent;
  • Average annual earnings-per-share (EPS) growth over five years of at least 15 per cent;
  • Annual sales change one year ago or two years ago of at least 10 per cent;
  • Current economic performance index (EPI) greater 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 looking for a positive ratio.
  • Future-growth-value-to-market-value ratio (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.

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.