In the last Number Cruncher we looked at companies that have recently seen analysts raise their earnings forecasts and which have growth and value characteristicsé Three stocks that met these criteria were Quebecor Inc, New Gold Inc. and National Bank of Canada.
Quebecor (QBR-B)
Quebecor has a Volatility score of 77 and a Quality score of 72, indicating its stability and strong ranking compared to its sector and the overall market. CPMS helps determine the most suitable strategy for a stock, and Quebecor’s strong scores in Volatility and Quality make it an ideal fit for the Predictable growth strategy. The Predictable Growth strategy is designed for conservative investors seeking growth at a reasonable price. The strategy looks for stocks with good earnings value, whose book values are growing but whose earnings have low levels of variability. Over the past five years, this strategy has outperformed the S&P 500 by 12.5%. However, Quebecor’s yield score of 55 suggests lower dividend yield on your investment, which may not be suitable for income seeking investors. Investors should take this into account when considering the stock.
A review of Quebecor’s key metrics highlights why the company fits well within a predictable growth strategy. In CPMS’s Factors Detail section, Quebecor ranks above the 70th percentile for nearly all quality measures, both within its sector and across the broader market. Notably, the company demonstrates a NOPAT stability (5Y) of 11.3% and an ROC Stability (5Y) of 0.33%, underlining its consistent earnings and profit generation. Additionally, an Economic Performance Index of 1.5 reflects Quebecor’s ability to create economic value, achieving a return on capital that is 1.5 times its cost of capital.
New Gold Inc. (NGD)
New Gold stands out in Momentum, with a score of 76 in that category. Therefore, it has a great score in CPMS’s Momentum strategy. The Momentum strategy is designed for aggressive, active, short-term growth-oriented investors. The strategy places significant emphasis on strong reported earnings growth, positive earnings surprise and positive earnings estimate revisions.
Over the past five years, this strategy has outperformed the S&P 500 by 15.9%.
Over the past year, the stock has exhibited strong price momentum, significantly outperforming the market. Over the past 12 months, New Gold has returned 144.1%, compared to the market’s 20.8%, generating a net excess return of 123.3%. Its performance was also impressive over shorter periods, with a six-month return of 83.6% versus the market’s 6.9%, resulting in a staggering 76.7% net outperformance.
With this strong price momentum, paired with solid cashflow and EPS growth, NGD has a score of 90 for the Momentum strategy. Reviewing the factor comparison, the stock stands out as attractively valued relative to its sector. Quebecor’s P/E ratio is 11.5, P/S is 3.9, and P/CF is 8.5, compared to sector averages of 60, 9.4, and 39.6, respectively. These figures highlight that the stock is undervalued within its peer group.
National Bank of Canada (NA)
National Bank of Canada has a Growth score of 76 and a Quality score of 78. Additionally, it scores 94 in the ESG Predictable Growth strategy and 98 in the Dividend Leaders strategy.
The ESG Predictable Growth strategy is designed for sustainability-conscious, conservative investors seeking growth at a reasonable price. It has ESG risk-screened stocks with good earnings value, whose book values are growing but whose earnings have low levels of variability. The Canadian Dividend Leaders Strategy, on the other hand, is suited for income-oriented investors seeking to invest in financially stable companies that have proven track record of dividend payment and sustainable payout ratio. ESG Predictable Growth strategy outperformed S&P 500 over a 5-year period by 11.3%.
CPMS’s Factor Tilt tool provides a compelling view of the company’s strengths, highlighting its solid positioning in value, growth, and quality factors. Diving into individual metrics, we see that NA has consistently ranked in the 86th to 93rd percentile for Average ROC (5Y), indicating strong and sustained return on capital. For the Economic Performance Index (EPI), it has maintained a percentile range between 75 and 85, reflecting solid value creation. Additionally, in terms of Sales Growth (3Y), the company has remained between the 87.8 and 91.3 percentile over the past year. These insights from the CPMS engine reveal the company’s resilience and strength, not just at the factor level, but also across key individual metrics.
By leveraging the CPMS engine, investors can screen and identify stocks that align with specific investment criteria. In this analysis, we focused on stocks that exhibit strong earnings revision with growth and value factor exposure. Quebecor Inc, New Gold Inc. and National Bank of Canada all demonstrated these key metrics, emphasizing growth along with quality or momentum. While these stocks offer the potential for higher returns, investors must be willing to accept the inherent risks associated with price momentum investing.
In conclusion, the CPMS engine provides a valuable tool for identifying high-potential stocks that align with specific investment strategies. By focusing on strong price momentum and earnings growth, investors can make more informed decisions. However, it is essential to consider individual risk tolerance and investment objectives before making any commitments. A well-balanced approach that incorporates both fundamental analysis and strategic insights from CPMS can help investors navigate market uncertainties and optimize portfolio performance.
