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Number Cruncher

Stock screens for investment ideas from professional investors. Exclusive to subscribers of Globe Unlimited.

Entry archive:

Fifteen Canadian stocks for conservative investors to avoid

IAN TAM

What are we looking for?

Companies that conservative Canadian investors should shy away from.

The screen

For many years, Morningstar CPMS has tracked a Canadian “Dangerous” portfolio that looks for companies with undesirable fundamental characteristics. The strategy itself is designed to underperform the market. However, it did well in 2016, which is highly uncharacteristic of the portfolio and is a hint that the market is rewarding companies with less than stellar fundamentals. Generally speaking, longer-term conservative investors will tend to stay away from stocks in this strategy. The Morningstar CPMS Dangerous Portfolio ranks stocks on the worst combination of:

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Nine infrastructure stocks that can benefit from Donald Trump

HUGH SMITH

What are we looking for?

Companies poised to capitalize on the current political landscape.

The screen

Donald Trump will be inaugurated this Friday, and it’s difficult to imagine a national leader more different to Mr. Trump than Justin Trudeau. But they do agree on some things, one being the need for fiscal stimulus – in the form of government spending on infrastructure – to spur economic growth. Interest rates appear to have bottomed out and begun rising in the United States, and are currently at historic lows in Canada. This means that monetary stimulus may have run its course, leaving fiscal stimulus as the predominant tool policy makers can use to encourage growth. Many infrastructure projects, such as Ontario’s Highway 407 for example, are undertaken as a public-private partnership, with government working with a private company that has infrastructure expertise.

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Nine small-cap TSX stocks that look poised to outperform

JEAN-DIDIER LAPOINTE

What are we looking for?

About the same time last year, we ran a small-cap screen that, as it turns out, performed extremely well in 2016: The average total return for the 10 stocks we found was 39 per cent. Given how well the strategy performed, we are running a very similar screen today.

The screen

We have screened Canadian companies with the following criteria:

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Fifteen low-volatility stocks that are profitable and priced at a bargain

MICHAEL PE

What are we looking for?

Profitable stocks with low volatility while being priced at a discount relative to their peers.

The screen

With every new year come New Year’s resolutions. However, new resolutions do not always mean new ideas or changing the things that work. This should be especially true with investing, as old-fashioned concepts have succeeded over the long term. Many investors have prospered for many years by using the simple long-standing notion of investing in low-volatility and profitable companies priced at a discount.

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These S&P 500 companies are stars in shareholder yield

IAN TAM

What are we looking for?

Companies in the S&P 500 working hard to increase shareholder yield.

The screen

This week, I focus on a concept called shareholder yield. This can be broken down into three components: (1) debt reduction, (2) share count reduction and (3) dividend yield.

The idea here is that we look for companies that are not only paying a sustainable yield (coupled with a reasonable dividend payout ratio), but are also reducing their outstanding share count and shrinking their debt load (to avoid companies that are financing yield by issuing new shares, or new debt, respectively). I’ve used Morningstar CPMS to rank the constituents of the S&P 500 index on the best combination of:

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Eleven defensive U.S. stocks with low volatility

KHALED ENIBA

What are we looking for?

Defensive U.S.-listed stocks providing a stable income stream, with a history of low earnings volatility and trading at attractive valuations.

The screen

Last year was one characterized by volatility: the S&P 500 saw a 52-week spread of 478 points; early-year leading sectors (telecom, utilities and consumer staples) were victims of sector shifts that accelerated following Donald Trump’s electoral victory, while OPEC’s supply-cut deal and higher inflation expectations catapulted the energy and financials sectors to the top of the pack by year end. We saw crude oil sink almost 30 per cent before ending the year 35 per cent higher than it was on Jan. 1, 2016. Gold rallied 30 per cent early on, yet crossed the finish line only 8 per cent higher than the start of last year. Ten-year U.S. Treasury yields dropped to a low of 1.32 per cent at the end of the second quarter, followed by a reversal in momentum to close at 2.43 per cent by year’s end.

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Nine Canadian large-cap dividend payers that appear undervalued

CRAIG McGEE

What are we looking for?

Profitable and undervalued Canadian large-caps.

The screen

It may come as a surprise to many but 2016 was the best year for the Canadian equity market since 2009. The S&P/TSX composite total return index posted a return of 21.1 per cent for the year. Materials and energy sectors led the way with returns of 41.2 per cent and 35.5 per cent, respectively. Health care was the only sector in negative territory, generating a loss of 78.5 per cent following the collapse of Valeant Pharmaceuticals.

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Twenty Canadian stocks showing positive momentum

IAN TAM

What are we looking for?

Canadian momentum names on the rise.

The screen

In 2016, one of the best-performing Morningstar CPMS model portfolios was the Canadian Momentum strategy. Certainly not a surprise to most, as we know that most of the returns in 2016 were driven by rallies in the materials and energy sectors, which often produce momentum-driven equity markets. For those who believe this momentum will continue into 2017 (and are able to handle the short-term volatility of such a strategy), perhaps a reminder of how this model works might be of benefit. The CPMS Canadian Momentum model ranks stocks on the following factors:

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Eight airline stocks set to capitalize on growth in American travel

HUGH SMITH

What are we looking for?

Attractive investments in the U.S. airline industry.

The screen

The U.S. dollar index (which tracks the greenback against six major world currencies) hit its highest level in 14 years on Tuesday, after strong manufacturing data were announced. Oil is cheaper than it has been for most of these past 14 years, and U.S. consumer confidence also just hit a 15-year high. If we connect these dots – a strong U.S. dollar, confident American consumers and cheap oil (which translates to cheap jet fuel) – this could be a strong season for U.S. travel, and for U.S. airlines.

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These 15 value stocks are less sensitive to rate hikes

JULIE MICHAELS

What are we looking for?

Value stocks that are not carrying high debt levels and are less sensitive to interest rates hikes.

The screen

As this year is coming to an end, investors turn their focus to their investment strategies for next year, trying to prepare for market trends that might occur.

The Federal Reserve boosted the key rate by a quarter percentage point in December, with many anticipating the trend to continue next year. While the Bank of Canada has not followed suit yet, that might very well change in 2017. With that in mind, I wanted to identify potential value buys that at the same time have low sensitivity to interest-rate increases. To achieve that, I focused on stocks that carry low levels of debt and generate sufficient earnings to pay their interest.

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Seven major U.S. bank stocks poised for a ‘gilded era’

PETER ASHTON

What are we looking for?

Major U.S. banks poised to benefit from a more relaxed regulatory climate.

This week, hedge fund manager Steve Eisman, famous for his bets against mortgage-backed securities in Michael Lewis’s book The Big Short, forecast that a “gilded era” for banks was about to get underway. In addition to the tailwinds created by rising interest rates, Mr. Eisman also predicts that U.S. president-elect Donald Trump will begin rolling back many financial regulations that have slowed the growth of U.S. banks in recent years. In spite of this sector moving higher by approximately 18 per cent since the election, U.S. banks have underperformed the broader market for the past eight years. Based on this thinking, this sector could still have considerable room to run.

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Twenty stocks that may be candidates for year-end tax-loss selling

IAN TAM

What are we looking for?

Candidates for tax-loss harvesting.

The screen

As we close in on the end of a rather spectacular but volatile year in Canadian equities, tactical retail investors may be looking at tax-loss harvesting. Essentially, this describes the end-of-year selling of a stock that has experienced a loss. By realizing – or “harvesting” – that loss, investors can offset taxes on both gains and income.

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These large-cap TSX dividend stocks look attractively priced

PATRICK GATTUSO

What are we looking for?

Dividend paying large-cap value companies in Canada that are considered undervalued based on relative valuation.

The screen

With 2017 just around the corner, the focus of today’s screener is to find large-cap undervalued companies in Canada using Thomson Reuters’s proprietary Relative Valuation StarMine model and adding a filter for dividend payers.

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Eight U.S. growth stocks trading at attractive valuations

JEAN-DIDIER LAPOINTE

What are we looking for?

Recently, we screened for Canadian growth companies trading at a discount. This week, we are applying the same filter to U.S. stocks.

The screen

We have screened our U.S. stocks universe (5,860 stocks) with the following criteria:

  • A market capitalization of $5-billion (U.S.) or greater;
  • A 12-month revenue growth of 10 per cent or greater;
  • A 24-month revenue growth of 20 per cent or greater;
  • An economic performance index, or EPI (return on capital divided by cost of capital) of at least 1.0. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
  • A return on capital of 10 per cent or greater;
  • A negative future growth value. The FGV represents, in percentage, the portion of the total market value that exceeds the company’s current operating value. The higher the number, the higher the baked-in premium for expected growth is, and the higher the risk. A negative number reflects a discount.

More about StockPointer

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Twelve U.S. stocks with price momentum and earnings growth potential

MICHAEL PE

What are we looking for?

U.S. stocks that have displayed upside price momentum with a positive earnings-growth outlook.

The screen

More than 60 per cent of stocks on the S&P 500 have a positive return quarter to date, and the index is up almost 9 per cent from the dip at the start of November. With upswings like this, investors may be hesitant to invest, fearing volatility in the near future.

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Ten U.S. stocks that are well positioned for future growth

KHALED ENIBA

What are we looking for?

U.S.-listed stocks that are well positioned for future growth, have an established history of low earnings volatility and trade at attractive valuations.

The screen

We screen for stocks that have demonstrated a disciplined approach to earnings growth, combining reasonable valuations, strong underlying businesses with room for bottom-line expansion, positive investor sentiment and low leverage.

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Twenty small-cap TSX stocks with growth and momentum on their side

CRAIG McGEE

What are we looking for?

Canadian small-caps with growth and momentum.

The screen

As a follow-up to our article from two weeks ago where we highlighted smaller Canadian dividend-payers, we wanted to focus again on small-caps, but this time emphasize those with higher growth and momentum characteristics.

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Eleven rallying oil-field services stocks with room to run

PETER ASHTON

What are we looking for?

North American oil-field services stocks poised to benefit from stabilizing world oil prices.

On Nov. 30, OPEC members reached a new agreement to reduce oil production levels by 1.2 million barrels a day. Since then, the price of crude oil has rallied about 1 per cent, leading to sharp advances in the stock prices of oil producers. However, the advance has been even more dramatic in the prices of oil-field services stocks, an industry that has suffered the past two years under the burden of low oil prices.

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Twenty TSX stocks that mix value, stability and growth

Ian Tam

What are we looking for?

Balancing value, stability and growth in the S&P/TSX composite index.

The screen

At the time of this writing, the S&P/TSX composite is up a whopping 19.5 per cent year to date, powered largely by commodity and energy prices. For those not buying into this momentum market, this week’s strategy may be an alternate for a longer-term investment strategy that balances value, growth and stability within the S&P/TSX composite index. The strategy ranks stocks on the best combination of:

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Nine attractively valued REITs for investors exploring real estate

HUGH SMITH

What are we looking for?

An attractively valued real estate investment.

The screen

Are property markets overvalued? This is a question many are currently struggling with, not only in the investment community, but throughout society at large.

In the past, real estate investments consisted almost exclusively of buying entire physical properties, meaning only institutions or very wealthy individuals could build a diversified portfolio of real estate assets.

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Number Cruncher Contributors

Ted Dixon, CFA

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Ted Dixon is co-founder of INK Research. INK stands for Insider News and Knowledge and through www.inkresearch.com is Canada's first on-line financial news and research service providing investor insight into what public company executives and significant shareholders are doing with their ownership interests.

Follow Ted on Twitter @TedDixon

Charles Martin, CFA

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Charles Martin, CFA, works in the Financial and Risk unit of Thomson Reuters and specializes in asset management.

Craig McGee, CFA

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Craig McGee, CFA, is a portfolio manager with The Ullman Group at Richardson GMP in Toronto.

Julie Michaels, MBA

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Julie Michaels, MBA, is a relationship manager for CPMS at Morningstar Research Inc.

Michael Pe, CFA

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Michael Pe, CFA, is an Institutional Product Specialist at Morningstar Research Inc.

Sean Pugliese, CFA

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Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.