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Number Cruncher

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

Entry archive:

These 13 stocks combine earnings momentum, stability

Julie Michaels

What are we looking for?

Companies whose earnings surpass their peers in the industry group to which they belong, and that have also shown a greater historical earnings stability.

The screen

The latest earnings season is upon us and a review of the median earnings growth trend in the CPMS universe shows that it has been hovering around zero for quite some time. With that in mind, I wanted to examine the approach of investing in companies that not only show profit growth, but also report earnings that are better than their industry group. I used CPMS to identify stocks that exhibit higher earnings and sales momentum than their peers. This strategy ranks stocks based on the best combination of:

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Twenty U.S. dividend stocks generating consistent earnings

IAN TAM

What are we looking for?

Consistent earners paying dividends in the U.S. market.

The screen

Given the relative weakness in the U.S. dollar (compared with the latter portion of 2015), Canadian investors may see this as a potential opportunity to enter the U.S. equity markets. This being said, equity markets themselves have been fairly volatile. With this in mind, I used Morningstar CPMS to create a modified version of the CPMS U.S. Dividend Growth model, putting a large emphasis on companies with consistent earnings over the last five years. The strategy ranks stocks on the best combination of the following factors:

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Does market performance actually back up 'sell in May' strategy?

KHALED ENIBA

What are we looking for?

May is upon us, and once again it’s an opportune time for the investment community to discuss the “sell in May and go away” phenomenon. It is the observation that equity-market returns in November through April outperform May to October.

The screen

We examine the historical performance of the S&P/TSX composite index and various sector and style indexes during both sets of months across the past six years (four of which are shown in the accompanying table). For each annual period, returns are broken into two sub-periods: November-to-April and May-to-October.

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Fifteen potentially undervalued Canadian stocks

CRAIG McGEE

What are we looking for?

Undervalued Canadian companies.

The screen

Canada has been an area of increasing interest for investors as energy and materials sectors have lifted the country’s main index to near the top of worldwide charts so far in 2016. Year-to-date, the S&P/TSX composite index has posted a return of 8.4 per cent. The rise has some investors questioning, however, whether the market has gotten ahead of itself or if there is still room to run.

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Nine dividend stocks for the bargain-hunting investor

PETER ASHTON

What are we looking for?

Canadian stocks with strong value-investing characteristics despite the dramatic upward move in the past two months.

Canadian stocks sold off sharply in January and early February due to declining crude prices and fears of a slowdown in China. However, the market reversed sharply higher in mid-February and has now added 15 per cent from its February lows. Many stocks in the energy and materials sectors are now up 35 per cent or more this year. In light of these strong performances, is there still value to be found in the Canadian market?

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These 10 stocks show both price momentum and reasonable valuations

IAN TAM

What are we looking for?

Stocks trading near their historical average valuations, but showing positive price momentum.

The screen

As the recent rally of the S&P/TSX composite index from March continues into April, investors confident of an extended rally may look to take advantage of some of this recent market momentum. This being said, value-oriented investors will find it difficult to simply jump in on general market signals without some further analysis. With this in mind, I’ve used CPMS to create a strategy that looks for stocks showing recent momentum, but are also trading at or near their historical average valuations. Specifically, stocks are ranked on the best combination of:

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Ten oil stocks set to rise with crude prices – with less downside risk

HUGH SMITH

What are we looking for?

Oil companies that will benefit from a rising oil price, without exposing investors to the downside risks of financial distress.

The screen

Back in February, crude oil traded as low as $26.05 (U.S.) a barrel – its lowest point in more than a decade. Opportunistic investors were wondering whether the bottom had been hit. The price is now more than $43 and many investors are looking for oil companies that will benefit if the oil price continues to rise.

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These 19 Canadian dividend stocks show rising economic performance

JEAN-DIDIER LAPOINTE

What are we looking for?

Canadian companies offering robust and rising economic performance. We are looking for a positive and rising EVA (economic value-added) figure, which represents the economic profit created in excess of the cost of capital. To calculate EVA, we simply subtract the cost of capital from the return on capital, and multiply the result by the total invested capital.

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Ten TSX stocks with positive momentum signals

MICHAEL PE

What are we looking for?

Stocks with strong upward momentum characteristics while trading at a discount compared with historical multiples.

The screen

After three consecutive quarters of negative returns, the S&P/TSX composite has produced 4.5 per cent for investors in the first quarter of 2016. More impressively, the index has delivered more than 17 per cent since it last bottomed out on Jan. 20. In March, 80 per cent of stocks on the index advanced for the month, up from a meagre 38 per cent in January. All these stats suggest positive market momentum and if that momentum is real, investors may be able to capitalize and ride the upward trend.

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'Free cash flow is king' for these 17 TSX dividend stocks

SEAN PUGLIESE

What are we looking for?

My associate Allan Meyer and I thought we would search for value among Canadian dividend payers using our investment philosophy focused on safety and value. We are highlighting one of our favourite valuation metrics: free cash flow to enterprise value.

The screen

We started with Canadian-listed equities with a market capitalization of $500-million or more. Free cash flow to enterprise value (FCF/EV) is a valuation metric. The higher the number, the better the value. All securities must have a FCF/EV of 0.05 or better. (FCF is a measure of the cash left over to all investors including debtholders after all expenses, reinvestments and capital expenditures; EV is simply a measure of a company’s total value excluding cash and cash equivalents.)

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Bullish technical signals point to these 11 TSX stocks

Ryan Gottschalk

What are we looking for?

Constituent companies of the S&P/TSX composite index that meet any of three bullish technical-analysis indicators.

The screen

Technical analysis can be a very powerful tool when looking to capitalize on short-term market trends. Indicators can be both bullish (positive) or bearish (negative) in nature, and are often used in conjunction with charting applications to allow for a visual overlay of the trend.

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Fifteen Canadian large-cap stocks for the cautious investor

CRAIG McGEE

What are we looking for?

Growth and value from large-cap Canadian companies.

The screen

Investors looking for value within Canada’s small-cap space have been rewarded so far this year. Year-to-date, the S&P/TSX small-cap total return index is up 13.5 per cent compared with 5.5 per cent for the large-cap S&P/TSX 60 total return index. Looking back over the past two years, however, gives us a different picture: The TSX 60 has returned a modest 2.3 per cent over that period, while its small-cap counterpart has lost 13.5 per cent.

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These six Canadian financial stocks are poised to move higher

PETER ASHTON

What are we looking for?

Canadian banks and financial stocks poised to move higher based on strong quarterly price performance, dividend yield and earnings growth projections.

Canadian banks and financial stocks had a difficult time in the past 12 months. Anticipation of imminent interest-rate hikes held down their share prices in 2015 while fears of a global recession knocked them to 52-week lows in February of this year. With recession fears left behind and a more dovish tone being set by the U.S. Federal Reserve, Canadian financial stocks have rallied strongly over the past six weeks, regaining much of the ground lost in the past year.

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These 20 U.S. stocks are analyst favourites

IAN TAM

What are we looking for?

Analyst favourites in the U.S. market.

The screen

As we roll into the latest stock reporting season in the United States, investors exposed to this market will likely be paying close attention to companies that meet, beat or miss earnings. Globe Investor recently published an article about street sentiment on this topic as well. With this in mind, I used Morningstar CPMS to create a strategy that looks for analyst favourites by ranking stocks on:

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Ten U.S. transportation stocks that can stay the course

PATRICK GATTUSO

What are we looking for?

Transportation companies in the United States that have positive free operating cash flow, minimal debt and have controlled operating costs over the past 12 months.

The screen

U.S. transportation companies have taken a hit over the past five quarters. After hitting a high of 630.63 in January, 2015, the S&P transportation index retraced over 30 per cent largely due to economic concerns and a depressed energy sector. The forward price-to-earnings ratio of this index has also fallen dramatically to below 10 – levels we haven’t seen since 2009 and before that, 2000. Currently, the forward P/E of this index sits at 12, compared with the 10-year average of 15.6.

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Look before you pounce on these high-yield dividend stocks

JEAN-DIDIER LAPOINTE

What are we looking for?

Dividends at risk from companies part of the S&P 500 index.

The screen

We searched the S&P 500 for companies offering relatively high – but at risk – dividend yields. Specifically, we’re looking for:

  • A dividend yield of 2 per cent or greater;
  • A dividend payout ratio (dividend per share divided by earnings per share) of 100 per cent or greater, or negative. (A negative payout ratio is a bad sign: It means the dividends are fully financed by existing cash, debt, new share issue);
  • Negative free cash flow to capital. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A negative figure raises a red flag.

The recent closing price is displayed for informational purposes.

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Ten small-cap stocks for a low-volatility portfolio

JULIE MICHAELS

What are we looking for?

Strong small-cap names that fare well throughout multiple market environments, with the focus on stocks exhibiting strong income, growth and momentum characteristics.

The screen

The current volatile-market conditions tend to draw investors to safer havens with a predictable income stream and low volatility of return and price. But that does not necessarily mean that they abandon the pursuit of higher returns.

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Twenty profitable Canadian companies with growing earnings

IAN TAM

What are we looking for?

Profitable Canadian companies with growing earnings.

The screen

One of the key metrics when looking at company profitability is its return on equity, which is a measure of a company’s operating earnings divided by the total shareholders’ equity. It answers the question: How much profit is a company creating with the money invested by shareholders? This week, I use Morningstar CPMS to focus on this metric by ranking stocks on:

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Eight Canadian dividend stocks trading at enticing multiples

KHALED ENIBA

What are we looking for?

Canadian equities that have underperformed relative to the S&P/TSX composite index this year, yet offer better multiples than the index average.

The screen

With the help of a rebound in oil and precious metals prices, the S&P/TSX has seen a remarkable turnaround this year, coming off a 9-per-cent decline by late January to return 2.5 per cent on a year-to-date basis. The materials sector has received the largest share of gains as the S&P/TSX materials index is currently up 19 per cent this year. Returns have varied widely across sectors and stocks, so we look for companies that have underperformed the index this year and are priced at more attractive multiples than their benchmark – possibly providing additional upside potential. Our criteria are as follows:

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Six REITs showing value, stability in surging real estate sector

CRAIG McGEE

What are we looking for?

Canadian real estate investment trusts (REITs) with attractive total return potential.

The screen

The Canadian market has been a relative outperformer this year, buoyed primarily by a resurgence in energy and materials sectors. The real estate sector, specifically REITs, has also performed well – the S&P/TSX REIT index has posted a total return of 10.7 per cent for the first three months of 2016 and has surged over 18 per cent since the low seen on Jan. 18.

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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.