What are we looking for?
Quality companies with several compelling attributes.
While many investors might argue that value or growth is the key factor in evaluating a company, at Inovestor, we prioritize quality above all. To us, it’s the foundation of long-term success and resilience. From there, we can refine our strategy by incorporating elements of value, growth, or – ideally – both.
Today, let’s look at stocks that offer the best of all worlds: primarily quality, with an added blend of value and growth.
The screen
We screened Canadian stocks using the following criteria:
· market capitalization greater than $1-billion;
· Stockpointer (SP) score greater than 60. This score mainly considers risk-adjusted return on capital (ROC), earnings-per-share (EPS) growth, free cash flow per share, and risk metrics such as valuation and leverage. The score varies between zero and 100. A score of 60 or more implies an above-average-performing company. This is a blended metric for quality, value and growth;
· five-year average earnings growth greater than 7 per cent. This is our growth criterion. The metric includes adjustments to handle cases in which positive earnings are divided by negative earnings;
· five-year average ROC greater than 10 per cent. This is our quality metric;
· market value added (MVA) on enterprise value (EV) lower than 40 per cent. This metric shows the discounted wealth creation priced into the company valuation. We derive the MVA by subtracting the invested capital from the EV, then dividing the result by the EV. A positive value implies the market has priced in some future wealth creation; a lower positive value implies a cheaper valuation. This is our value criterion.
For informational purposes, we also added the price-to-earnings ratio (P/E), dividend yield and one-year price return.
More about Inovestor
For 25 years as a pioneering Canadian fintech, we’ve consistently pushed the boundaries to empower investment advisers with advanced, easy-to-use investment strategies. Discover more about our journey and offerings on our website.
What we found
Companies with an ideal blend of everything
| TICKER | NAME | PRICE ($) | MKT VALUE ($BIL.) | SP SCORE | MVA / MKT. VALUE (%) | 5Y ROC (%) | 5Y AVG. EPS GRTH. (%) | P/E | DIV. YLD. (%) | 1Y PRICE RTN. (%) |
| DPM-T | DUNDEE PRECIOUS METALS INC. | 13.89 | 2.5 | 76 | 19.1 | 12.0 | 59.9 | 8.8 | 1.7 | 68.8 |
| NVA-T | NUVISTA ENERGY LTD. | 13.43 | 2.8 | 66 | 8.7 | 10.8 | 35.7 | 9.4 | – | 22.0 |
| BBU-UN-T | BROOKFIELD BUSINESS PARTNERS LP | 31.25 | 2.3 | 63 | -3.4 | 10.5 | 26.7 | 2.8 | 1.1 | 17.6 |
| CIA-T | CHAMPION IRON LTD. | 5.56 | 2.9 | 63 | 37.6 | 24.4 | 24.0 | 11.4 | 2.0 | -19.4 |
| FTT-T | FINNING INTERNATIONAL INC. | 37.84 | 5.2 | 73 | 21.0 | 10.9 | 16.2 | 11.9 | 2.9 | -1.5 |
| LAS-A-T | LASSONDE INDUSTRIES, INC. CLASS A | 176.99 | 1.2 | 65 | 14.1 | 10.6 | 13.2 | 11.2 | 2.1 | 26.3 |
| IPCO-T | INTERNATIONAL PETROLEUM CORP. (BRITISH COLUMBIA) | 19.15 | 2.3 | 60 | 15.5 | 11.2 | 9.2 | 13.5 | – | 29.9 |
| RUS-T | RUSSEL METALS INC. | 41.27 | 2.4 | 67 | 18.7 | 15.0 | 7.8 | 13.6 | 4.2 | -4.2 |
| LNF-T | LEON’S FURNITURE LIMITED | 24.89 | 1.7 | 74 | 28.6 | 12.5 | 7.0 | 12.8 | 3.2 | 29.7 |
Dundee Precious Metals Inc. is a gold mining company that stands out for its numerous strengths. It demonstrates excellent quality, supported by a solid SP Score of 76 and a five-year average ROC of 12 per cent. On the growth front, the company impresses with an average annual EPS growth of 59.9 per cent over the past five years. Valuation-wise, the stock appears attractive, with an MVA to EV ratio of 19.1 per cent and a P/E ratio of 8.8. Lastly, the stock has shown robust momentum, with a 68.8-per-cent increase in share price over the past year.
Nuvista Energy Ltd. is a condensate and natural gas company engaged in the development, delineation and production of condensate and natural gas reserves in the Western Canadian Sedimentary Basin. The company offers a well-balanced mix of quality, growth and value. The company holds a solid SP Score of 66, delivered an impressive 35.7 per cent EPS growth and has an MVA to EV ratio of 8.7 per cent. Nuvista could present an interesting opportunity for investors looking to capitalize on the natural gas industry.
Brookfield Business Partners LP, the private equity arm of Brookfield, presents an appealing value-oriented opportunity, with a negative MVA to EV ratio of minus 3.4 per cent. In other words, despite a historical return on capital of 10.5 per cent, the market prices the stock as if it anticipates the company will destroy value for shareholders. The low valuation is also reflected in its P/E of just 2.8. The company’s diverse portfolio of assets could make it an interesting value option for investors.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more details about these stocks, subscribe to the Inovestor for Advisors platform for free.
Anthony Ménard, CFA, is vice-president of data management at Inovestor.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
