What are we looking for?
At our firm we run a proprietary Canadian portfolio called the Safety and Value Portfolio. I thought it would be interesting to have a look at the top six holdings, and also to apply the same investment criteria that we use in selecting Canadian companies to European and U.S. markets.
Eleven different indicators are used in the calibration of our model. I’ll highlight two of them.
One is the price-earnings ratio, a classic tool for evaluating the relative attractiveness of a company’s stock price. But there are some limitations with the P/E ratio because of inaccurate earnings estimates.
So we also look at the relationship between the free cash flow (CF) and the enterprise value (EV) of a company. A company’s cash flow statement can be highly informative: It takes into account the actual cash that flows in and out of a company, and is often a better indicator of financial health than net income.
What did we find?
All companies are ranked on a score based on all the indicators that we use. We are looking for a high number.
The top ranked Canadian company is Nevsun Resources, which is a gold production company with properties in East Africa.
The top ranked company overall is Xyratex Ltd., a British company that trades on Nasdaq. It is a leading supplier of data storage services and hard disk drive equipment.
Humana Inc. is very interesting. The free cash flow for this U.S. health care firm is more than three times the enterprise value of the company.
The screen indicates that there appears to be more value in Canada than in the U.S., or Europe.
Mr. Bowman is portfolio manager at Wickham Investment Counsel Inc.
Safety and value screen
|Company||Ticker||Ranking||Market cap. ($ mil.)|
|Inmet Mining Corp.||IMN-T||51.46||$3,392|
Canadian companies are in C$, all others in US$. Source: Bloomberg
|Company||Ticker||Ranking||Market cap. ($ mil.)||Trailing P/E||Forward P/E||Free CF to EV %||Forward 12M P/E||Yield %||3-month earn. est. rev. %|
|Inmet Mining Corp.||IMN-T||51.46||$3,392||10.37||10.79||4.43||41.36||0.41||-7.78|
|KPN (Konin) NV||KPN-NA||47.21||$9,452||8.13||7.72||11.81||31.6||10.35||-1.56|
|H&E Equipment Serv.||HEES-Q||47.21||$661||25.43||20.55||-13.4||79.11||0||7.49|
- Nevsun Resources Ltd$4.27-0.22(-4.90%)
- WestJet Airlines Ltd$20.35-1.14(-5.30%)
- Uni Select Inc$65.71+2.56(+4.05%)
- Russel Metals Inc$21.50-0.57(-2.58%)
- Wajax Corp$17.18-0.94(-5.19%)
- Humana Inc$176.93-0.68(-0.38%)
- H&E Equipment Services Inc$20.29+0.03(+0.15%)
- FreightCar America Inc$14.72-2.28(-13.41%)
- Frontier Communications Corp$5.22-0.22(-4.04%)
- Updated May 3 4:00 PM EDT. Delayed by at least 15 minutes.