In the last Number Cruncher, we looked at momentum companies that have fundamental strength and may have been overlooked by the extended rally in the material sector.
Cenovus Energy (CVE-T)
Cenovus Energy stands out in Value & Quality, with a score of 67 & 61 respectively in those categories. Therefore, it has a great score in CPMS’s Earnings Momentum strategy. The CPMS Canadian Earnings Momentum Strategy is suited for aggressive, short-term, active investors. It emphasizes stocks with high earnings estimate revisions and quarterly earnings momentum. Stocks those have expected earning potential and momentum to it.
CVE price performance has been impressive since the last 6 months of about 23.4%. The factor comparison section also showcases the company’s better metric when it comes to valuations compared to its sector. The lower P/E and higher yield compared to its sector makes it attractive towards income generating undervalued investors with the added benefit of momentum shown by its price.
Celestica Inc (CLS-T)
Celestica has a Quality score of 89 and a Momentum score of 80, indicating its stability and momentum ability ranking compared to its sector and the overall market. CPMS helps determine the most suitable strategy for a stock, and Celestica’s strong scores make it an ideal fit for the 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. Short-term technical growth factors are also used. However, Celestica’s Value and Volatility score of 59 and 30 suggests it may not provide a significant value capture and also be prone to big swings for investors with stable or undervalued strategies.
CPMS’s Factor Tilt tool provides a compelling view of the company’s strengths, highlighting its solid positioning in quality, growth, and volatility factors. Diving into individual metrics, we see that Celestica is ranked in the 76th for EVA momentum, indicating speed of EVA growth. Similarly, for the NOPAT growth (3Y), it is sitting at 94th percentile, reflecting growing profits and financial strength. Additionally, in terms of Volatility factor, Sharpe ratio has been between the 99th and 89th percentile over the past year showcasing its incredible risk adjusted returns. These insights from the CPMS engine reveal the company’s growth and momentum, not just at the factor level, but also across key individual metrics.
Brookfield Infrastructure Partners (BIP.UN-T)
Brookfield stands out in Quality and Yield, with a score of 69 and 63 in those categories. Therefore, it has a great score in CPMS’s Income strategy. The Income strategy is designed for income-oriented investors with low risk tolerance. The strategy is primarily focused on selecting stocks with high dividend yields and low-price betas. Moderate importance is also placed on upward estimate revisions as well as quarterly earnings momentum.
A review of Brookfield’s key metrics highlights why the company has a good quality score. In CPMS’s Factors Detail section, the company demonstrates a NOPAT stability (5Y) of 0.80% and a NOPAT growth(5Y) of 40.7%, underlining its consistent earnings and profit generation. Additionally, an Economic Performance Index of 1.28 reflects company’s ability to create economic value, achieving a return on capital that is 1.28 times its cost of capital.
By leveraging the CPMS engine, investors can screen and identify stocks that align with specific investment criteria. In this analysis, we focused momentum stocks backed with fundamental strength that have price momentum along with decent cashflow and earning momentum. Cenovus Energy, Brookfield Infrastructure Partners, and Celestica all demonstrated these key metrics, emphasizing positive price growth along with growing earning as explained in our number cruncher blogpost. While these stocks offer momentum for investors to ride with the rising tide, however they must be willing to accept the inherent risks associated with 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.
