News

Saturday, July 4, 2009 04:12 AM

North Growth tops U.S. equity funds list

Shirley Won

What are we looking for?

Index beaters among U.S. stock funds over the long haul.

It isn't easy for active managers to beat their benchmark over the longer term, especially in the U.S. market where there is wider analyst coverage of stocks than in Canada.

Today's search

We asked Victor Tan, analyst at Globe Investor's fund unit, to rank U.S. equity funds by the best performers among those with at least a 15-year track record. Segregated, duplicate and U.S. dollar-versions of funds were excluded.

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Saturday, July 4, 2009 04:07 AM

Some consistent performers, going for cheap

GORDON EDALL

WHAT ARE WE LOOKING FOR?

This week, we've been exploring long-term trends in profit growth in an attempt to look past some of the short-term volatility that can rile share prices and cause investors unnecessary angst.

Cyclical trends, extraordinary items and other events can in some cases create a distorted picture of a company's financial health. We are trying to look past that and find companies that deliver consistent growth over time.

TODAY'S SCREEN

In trying to track down the companies that are delivering the most consistent growth over time on the TSX, we turned our eye to the compound annual growth rates for diluted EPS and started running the numbers on a three-year, five-year and 10-year basis - extraordinary items were excluded.

We set the bar very high, looking for companies that delivered better than 15-per-cent growth in each period.

Once we had our list of consistent performers, we sorted them by price-earnings ratio to figure out which ones were relatively cheap right now.

WHAT DID WE FIND?

It didn't come as a surprise that only 22 companies on the TSX made the cut. What was a surprise is how very different they all are from one another.

Energy heavyweight EnCana is the sort of name you might expect on this list, and with natural gas prices under pressure right now and the recession still playing itself out, it sits near the very top given our sort order. Canadian Natural Resources, Enbridge, Inter Pipeline and Major Drilling round out the contingent from the oil patch.

Brookfield Properties, with its exposure to real estate, interest rates and the economy, is in a different space than EnCana, but it similarly doesn't look out of place atop the list.

Stella-Jones makes power poles and other treated lumber products and, if you think it's surprising that a company in the forestry sector made it, consider that it's not alone - Sino-Forest, and its forests in China business model, also made the list.

Le Château seems to have sharply turned the season's fashions into a reliably profitable niche. Ritchie Bros. Auctioneers meanwhile has taken a different tack, reselling last season's things for a tidy profit year-in and year-out.

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Saturday, July 4, 2009 04:10 AM

RIM stands out as profit growth leader

Gordon Edall

What are we looking for?

Today we're looking for companies with at least a 10-year track record of delivering earnings growth. This sort of time horizon offers enough perspective that we should be able to look past some of the short-term issues that crop up for companies and identify the ones that are able to consistently deliver results.

So far this week, we've highlighted the most profitable companies on the S&P/TSX composite over the past three- and five-year periods. To push our time frame out a little further, we've turned to Capital IQ's historical database to gather the information we need.

More about today's screen

We're still looking for companies on the S&P/TSX composite, but we've made a couple changes to the methodology this time around. We are now using the compound annual growth rate of diluted earnings per share to determine our sort order and that data are trailing 12-month data in U.S. dollars. Income, assets, earnings before interest and tax, profit and revenue growth over the past 10 years are highlighted as well but they are also on a trailing 12-month basis.

What did we find?

Research In Motion is a standout near the top of this list, as it was when we looked at the three- and five-year data as well. Ten years ago, RIM was well on its way to establishing the BlackBerry as the must-have accessory for the business elite. What's remarkable is how successful it's been in the intervening years and moving further and further down market as it continued its voracious growth. While Shaw Communications and Open Text are testament to the fact that some tech companies were able to continue to build sound business models even in the aftermath of the tech bubble's bursting, the presence of Canadian Natural Resources, EnCana and Petro-Canada speak more to the core strengths of the Canadian economy and its potential profitability for solid operators.

Past performance is never a guarantee of future results so you still need to do your homework and dig deeper into the financial results. You can do more research at Globeinvestor.com.

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Saturday, July 4, 2009 04:04 AM

Looking for the steady money-makers

Gordon Edall

What are we looking for?

Companies that have shown an ability to grow profit year in and year out are worth keeping on your radar screen.

While no company is immune to earnings volatility, looking at the long-term trends can help minimize the distortion from extraordinary items or help reveal cyclical pressures.

This week we're looking for the most profitable companies on the S&P/TSX composite over long periods. Today we'll look at the most profitable companies over the past five years. We looked at the three-year leaders yesterday and we'll take a look at the 10-year winners tomorrow.

More about today's screen

We're looking at earnings per share growth for companies on the S&P/TSX composite over the past five years to the most recent annual results. Income, asset, earnings before interest and tax, net income and revenue growth over the past five years will also be spotlighted.

What did we find?

A few names can be found here that also appeared on yesterday's list of three-year leaders. Research In Motion and Major Drilling were in the top 10 on both lists and were slightly stronger when viewed through the five-year lens. Inter Pipeline Fund, Crescent Point Energy, Boardwalk REIT, Keyera Facilities Income Fund, Baytex Energy Trust and Talisman Energy round out the list of companies that made the cut on both lists.

If you're interested in investing in any of these companies, you will need to dig deeper into the financial results. For example, a company with steady earnings improvement is more interesting than a company that has volatile earnings from year to year or has earned a large one-time gain that skews long-term averages. You can do more research at Globeinvestor.com.

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Friday, July 3, 2009 03:29 AM

The strongest long-term profit growth

Scott Adams

What are we looking for?

Many companies can have volatile earnings from year to year depending on economic cycles, extraordinary items or other reasons.

It's with this in mind that many professional investors like to look at the long-term trends for financial results. This week we'll look at the most profitable companies on the S&P/TSX composite over long periods. Today we'll look at the most profitable companies over the past three years. Later this week we'll look at five-year and 10-year trends.

More about today's screen

We'll look at earnings per share growth for companies on the S&P/TSX composite over the past three years to the most recent annual results. Income, asset, earnings before interest and tax, net income and revenue growth over the past three years will also be spotlighted.

If you're interested in investing in any of these companies, you'll need to dig deeper into the financial results.

For instance, a company with steady earnings improvement is more interesting than a company that has volatile earnings from year to year or has earned a large one-time gain that skews long-term averages.

You can do more research at GlobeInvestor.com.

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Friday, July 3, 2009 03:24 AM

Solid returns in shrinking income trust market

Shirley Won

What are we looking for?

How Canadian income trust funds have fared lately and over the past decade.

Ottawa sounded the death knell for trusts on Halloween in 2006 with its plan to tax them like corporations by 2011. More trusts have been converting to common-stock companies as the deadline nears.

The shrinking of the trust market has forced funds to search for alternative income-spewing securities, while others are simply winding up.

Today's search

We screened the year-to-date returns to May 31 since some funds are valued monthly. We also checked out funds with at least a 10-year-record. U.S.-dollar versions were excluded.

TD Income Trust Capital Yield is slated to close down at the end of next month. And unitholders of BMO Income Trust will also be asked to agree to let it turn into a global infrastructure fund on or around July 30.

What did we find?

RBC Canadian Diversified Income Trust – launched only a couple of months before Ottawa's nasty Halloween surprise – has blown past its peers for the first five months with a robust 23-per-cent gain.

The RBC fund, whose mandate is to be 80 per cent invested in income trusts and the rest in stocks, has also profited from short-term trading in names like Jazz Income Fund, Kinross Gold Corp. and Goldcorp Inc., manager Jennifer McClelland says.

“We manage this fund quite actively.”

With more trusts converting to corporations, this fund yesterday got the nod from its unitholders to permit it to increase its investments in common and preferred shares of dividend-paying Canadian companies. It will be renamed RBC Canadian Equity Income Fund.

Over a decade, income trust funds have offered investors handsome returns. Renaissance Canadian Monthly Income Fund, which is run by Gaelen Morphet at CIBC Asset Management, has posted an average annual return of 11.1 per cent – outperforming the trust index and even the S&P/TSX composite index.

Her younger Renaissance Diversified Income Fund is run similarly. Both funds expanded mandates in early 2007 to include stocks and bonds, while trusts represent about 40 per cent of assets.

Some of the trusts have provided solid performance over the years, including names like Labrador Iron Ore Royalty Income Fund, Northwest Company Fund, Canadian Oil Sands Trust, Inter Pipeline Fund, ARC Energy Trust and RioCan Real Estate Investment Trust, she said.

Ms. Morphet, a value-oriented investor, attributes her funds' longer-term performance to her conservative approach to investing. “We stayed away from the big income trust IPO market,” she says. “We waited to see how the companies performed as a trust for at least a year following its conversion.”

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Friday, July 3, 2009 03:29 AM

Bailouts mean U.S. banks top cash-rich list

Steve Ladurantaye

Credit markets may be showing tentative signs of thawing, but companies with money in the bank are still likely feeling a little more comfortable than their cash-strapped peers.

Looking for cash-rich companies is an investment strategy that is important not only for the defensive position offered by having money in the bank, but it can also set the stage for increased dividends, stock buybacks and growth.

But there are risks even with cash-rich companies: Executives can spend the cash on a transformative deal you might not like, it could lead to a degree of complacency and, in event of a takeover, cash held is often worth less than 100 cents on the dollar to the acquirer.

Today's screen

Yesterday, we looked at Canadian companies, so today our focus is on U.S. firms in the S&P 500 that are sitting on money.

The “net cash per share” screen is just one tool used by value investors looking for investment opportunities in companies whose shares have sometimes been under sustained selling pressure. The formula for net cash per share is the total value of all cash and equivalents less the total of the short- and long-term liabilities divided by the shares outstanding. The net cash per share is then expressed as a percentage of the current price.

What we found

Oh right – bailouts. Nine out of the top 10 companies on the list are financial institutions, and they have been buttressed by buckets of government money to help see them through the crippling losses they've faced during this recession. Since these numbers are for the last quarter, they don't even reflect the massive amounts the banks have raised from the markets following stress tests by the U.S. government.

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Wednesday, June 24, 2009 08:39 PM

Stocks with wads of cash in their back pockets

Steve Ladurantaye

Being short of cash is never a good thing and it can certainly be embarrassing. For corporations, having cash on hand can be critical, especially given that the banks are still being awfully stingy with their credit.

Looking for cash-rich companies is an investment strategy that is important not only for the defensive position offered by having money in the bank, but it can also set the stage for increased dividends, stock buybacks and growth.

But there are risks even with cash-rich companies – executives can spend the cash on a transformative deal you might not like, it could lead to a degree of complacency and, in event of a takeover, cash held is often worth less than 100 cents on the dollar to the acquirer.

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Thursday, June 25, 2009 11:29 AM

Blue-chip preferreds let you sleep at night

David Parkinson

What are we looking for?

In our recurring quest for yield-generating investment ideas, we turn our attention once again to preferred shares – which, for many investors, represent a dark and murky corner of the market, sharing traits with both common shares and corporate bonds while not entirely resembling either. We have once again enlisted our friends at the Preferred Share Desk of Desjardins Securities in Toronto, to help point us to their favourite picks in the preferred share universe, which has been offering both strong yields and rising prices in recent months.

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Monday, June 22, 2009 07:24 PM

Our portfolio still has the magic touch

John Heinzl

What are we looking for?

Let’s get an update on the “magic formula” portfolio we created in November. As we’ll see, the magic is still going strong.

The background

Joel Greenblatt, founder of U.S. hedge fund Gotham Capital, shares his stock-picking strategy in The Little Book that Beats the Market. Published in 2005, the book outlines a method for finding companies that are both profitable and cheap.

The “magic formula” focuses on two measures: return on capital and earnings yield. The higher the return on capital – defined as pretax operating profit divided by the sum of net working capital and net fixed assets – the more effectively a company is using its capital to generate profit.

The higher the earnings yield – which Mr. Greenblatt defines as pretax operating profit divided by enterprise value, or the sum of stock and debt – the more attractive the stock is from a valuation standpoint.

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