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Number Cruncher

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

Entry archive:

Morningstar strategy targets less-familiar stocks outside the S&P/TSX composite

IAN TAM

What are we looking for?

Picks outside of the S&P/TSX composite index.

The screen

To create today’s strategy, I took a hybrid approach using Morningstar CPMS considering growth, value, momentum and stability factors. Because these may be less familiar companies, in all cases I’ve used trailing figures as a way to avoid relying on analyst estimates. Specifically, the strategy ranks stocks on the best mix of the following:

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Looking beyond North America: Three stocks in attractively valued sectors

HUGH SMITH

What are we looking for?

Attractive investments in promising markets outside North America.

The screen

Diversification is the key to sound investing. This means investing across different sectors and across the different regions of the world. Canadians are particularly bad at the latter, studies have shown, with the second-strongest home bias (tendency to overinvest in one’s home country) in the world, behind only Japan. There is growing fear of a housing bubble in Canada and a great deal of political uncertainty surrounding our largest trading partner. More than ever, now may be the time to look abroad – but where?

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Sizing up Canada's biggest financial stocks on growth, profit and value

JEAN-DIDIER LAPOINTE

What are we looking for?

How Canada’s largest financial institutions compare, based on economic profit, valuation and growth.

The screen

We created a spreadsheet to compare the Canadian banks and alternative lenders with a market cap above $500-million by looking at the following metrics:

  • Return on capital;
  • The economic performance index, or EPI (return on capital divided by cost of capital). 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);
  • The 12-month sales change;
  • Future-growth-value-to-market-value ratio. This metric represents, in percentage, the portion of the market value that exceeds the company’s current operating value. The higher the number, the higher the baked-in premium for expected growth, and the higher the risk. A negative number reflects a discount;
  • Dividend yield;
  • One-year dividend growth;
  • Dividend payout ratio – that is, the proportion of net income paid out as dividends.

The three-month stock price performance is displayed for information purposes.

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Six tech stocks with strong growth – and sustainable dividends

SCOTT CLAYTON

What are we looking for?

Forget Snap. We’re looking for tech stocks with strong growth – and sustainable dividends.

The screen

The buzz surrounding the Snap IPO was as much about the company’s big losses as it was its popular Snapchat messaging app.

Snap’s share price may yet move higher if momentum traders load up on the next upswing. But we think a better approach for investors is “Internet tech” stocks – in cloud computing, cybersecurity and so on – that offer growth and dividend income.

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Search for safety: 17 dividend-paying U.S. bank stocks

SEAN PUGLIESE

What are we looking for?

Dividend-paying U.S. banks using our investment philosophy focused on safety and value.

The screen

My colleague Jeff Pocock and I started our search by filtering for banks in the S&P 500 index. Then we looked at dividend yield, the annualized dividend divided by the recent share price. We sorted the list on this metric, from highest yielding to lowest. Dividends generally reflect safer and steady earnings profiles, and of course we like to get paid while we wait for capital appreciation.

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These 18 TSX securities yield more than 5 per cent

RYAN GOTTSCHALK

What are we looking for?

Securities providing a strong, sustainable dividend that can be used to supplement the return of long-term bonds within a portfolio.

The screen

Strong domestic economic data have been a common theme throughout 2017 and, with hints of above-target inflation coming into play, it appears that yields that were once sought after in the long-term bond market are coming to an end. With that being said, investors looking to supplement this yield in their portfolios are turning to equity securities that offer bond-like characteristics through long-term dividend stability. Today’s screen seeks out high yield equity securities by looking at Canadian companies with a dividend yield of at least 5 per cent.

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Ten Canadian stocks with solid growth prospects

CRAIG McGEE

What are we looking for?

Reasonably valued Canadian companies with momentum and earnings to reinvest.

The screen

Equity markets have been continuing their upward trend, underpinned by generally strong and broadly based earnings growth. For instance, the average Canadian company has seen its latest quarter’s earnings grow 16 per cent over the same quarter from one year ago. Estimates for next quarter push this figure to almost 28 per cent. Given the general strength in prices, however, some investors have been questioning whether valuations are sustainable.

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Eight U.S. materials stocks with attractive valuations

PETER ASHTON

What are we looking for?

U.S. materials stocks offering low valuations and strong dividend yields.

The current bull market has lifted many stocks, but the gains have not been even across all industry sectors.

Some sectors, such as health care and financial services, have been red-hot while others, such as materials and telecom services, have seen more muted gains.

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Fifteen low-volatility TSX stocks that have beaten analyst estimates

IAN TAM

What are we looking for

Low beta providers that have surprised analysts in the most recent quarter.

The screen

As we wrap up fourth-quarter earnings season in Canada for most companies in the TSX, active investors on the Street are likely looking for companies that have exceeded analyst expectations. This week, I use CPMS to look for such companies while keeping in mind their historical volatility.

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Five defensive North American dividend stocks

PAUL HOYDA

What are we looking for?

Opportunities to invest in defensive North American stocks with a track record of maintaining dividends.

The screen

The markets have been chugging along strongly since the beginning of the year, continuing gains since early 2016. Year-to-date, the S&P 500 is up 5.7 per cent and the Dow is up 5.4 per cent. Equities continue to gain as the Federal Reserve continues a low interest rate policy, but they have previously wobbled in response to small interest rate increases in late 2015 and 2016.

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Eleven Canadian industrial stocks geared for growth

JEAN-DIDIER LAPOINTE

What are we looking for?

High quality Canadian industrial companies showing positive revenue growth and economic performance.

The screen

We have screened our Canadian industrials universe using the following criteria:

-A minimum market cap of $350-million;

-An economic performance index, or EPI (return on capital divided by cost of capital), of 1.0 or higher. 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);

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Thirteen stable stocks with earnings surprises, lower volatility

MICHAEL PE

What are we looking for?

Stable stocks with positive estimates revisions and earnings surprises.

The screen

The decision to invest in equities is not clear-cut in our current environment.

Valuation indicators are reading the S&P/TSX composite index as being overvalued, a case in which a sell-off or correction may be imminent. However, despite the same concern of stock-market overvaluation last year, equities have continued to climb, with the S&P/TSX reaching an all-time high just last month. There are valid arguments on both sides of the table. For those who do decide to invest, choosing the right stocks becomes an ever more important undertaking.

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Nine TSX stocks that combine price momentum, fundamental growth

IAN TAM

What are we looking for?

A concentrated Canadian portfolio showing growth and momentum across most economic sectors.

The screen

This week, I use Morningstar CPMS to develop a strategy that looks for companies with positive price momentum, but that are also supported by fundamental growth and profitability. This strategy contrasts with what happened last year in Canada, with companies showing positive price momentum not supported by fundamental growth (a consequence of the cyclical nature of the Canadian equity markets). The strategy ranks stocks on the following factors:

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Ten Canadian dividend stocks with plenty of excess cash

KHALED ENIBA

What are we looking for?

Canadian equities trading at reasonable valuations, paying attractive dividends and generating the excess cash necessary to reinvest in their businesses.

The screen

Dividends are an important component of total return that cannot be ignored. Indeed, over the past five years, dividends have represented 43 per cent of the S&P/TSX composite index’s total return.

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Fifteen financial stocks showing reasonable valuations

CRAIG McGEE

What are we looking for?

Profitable North American financial companies with reasonable valuations.

The screen

Two months into the new year, surging markets show no real sign of slowing down and investors are appearing to maintain their appetite for riskier securities.

Over the past 12 months, the S&P/TSX composite total return index and the S&P 500 total return index have posted gains of 23.7 per cent and 25.0 per cent, respectively.

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Seven U.S. large-cap dividend stocks that are reasonably priced

PETER ASHTON

What are we looking for?

U.S. stocks offering the potential for long-term earnings growth while providing reasonable valuations and efficient operations today.

With the U.S. stock market now up more than 10 per cent since the election in November, many investors are beginning to question whether there are still good values to be found. In Benjamin Graham’s classic 1949 book The Intelligent Investor, the author asserts a number of principles when shopping for companies offering growth at a reasonable price (GARP). In this article we will put together our own formulation looking for long-term earnings growth, dividends and reasonable forward price-to-earnings ratios.

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Fifteen stable U.S. companies paying out reasonable yields

IAN TAM

What are we looking for?

Large U.S. companies paying out reasonable yields and showing steady earnings.

The screen

With a new U.S. President commencing what appears to be the execution of campaign promises, investors in the U.S. equity markets are reacting well so far, all things considered. Year to date, the S&P 500 total return index is up around 6 per cent. However, for those less confident in the growth of the U.S. economy, the following conservative, yield-focused strategy can offer some ideas. The strategy ranks stocks on three basic factors:

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Eight U.S. financial companies poised for growth

HUGH SMITH

What are we looking for?

U.S. financial companies with growth potential.

The screen

At the Federal Reserve’s final meeting of 2016, the Federal Open Market Committee decided to raise interest rates for only the second time since the market crash of 2008. Now with the U.S. economy looking stronger, combined with President Donald Trump’s promises to overhaul taxes and increase spending, the market is now expecting two to three rate hikes this year alone.

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Seventeen U.S. defence stocks that could see a boost under Trump

JEAN-DIDIER LAPOINTE

What are we looking for?

U.S. President Donald Trump’s first budget is expected to be released mid-March, and if he delivers what he promised many times, it should include a significant increase in defence spending. Since the Nov. 8, 2016, presidential election, the S&P Aerospace & Defence Index has gained about 17 per cent, but there could be more to come. This week, we are comparing 17 aerospace & defence stocks of our universe to see how they rank based on some economic performance and valuation criteria.

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Five beaten-down stocks with highly sustainable dividends

SCOTT CLAYTON

What are we looking for?

Canadian and U.S. companies with highly sustainable dividends – despite a significant earnings slide in 2016.

The screen

A big drop in profit can rightfully signal danger – the loss of a major customer or overdependence on a declining market, for example. But income investors often let it overshadow a company’s fundamental strength and, more important, its dividend sustainability.

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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.