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Number Cruncher

Negative momentum: A stock trend that flashes ‘warning’ Add to ...

What are we looking for?

Last week we looked at companies with share prices that had risen over the past 30 and 90 days – a feature known in the trade as positive price momentum. We then refined our list to include only companies where analysts’ earnings estimates were positive for the next 12 months.

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This week we are going in the opposite direction. My colleague Sean Pugliese and I searched for companies with share prices that have declined over the past 30 and 90 days, and for which analysts have decreased their earnings estimates for the next 12 months.

This screen will be of interest to investors looking for clues about when to sell, or people searching for shorting candidates.

The screen

Momentum investing is a strategy that tries to ride the trend in a stock price. A momentum investor buys a stock – goes “long” – when it is trending higher.

Some momentum investors also play trends in the other direction. If a stock is falling, they will “short” it – borrow it and sell it – on the belief the stock will continue to fall. If so, they will be able to buy it cheaper in the future, then cover their short position at a profit.

Today’s screen looks at Canadian stocks with negative momentum as demonstrated by a declining share price as well as negative revisions to analysts’ earnings estimates. We considered only Canadian companies with a minimum market capitalization of at least $500-million.

What did we find?

Seventeen companies showed up on our list. Bird Construction, as an example, has seen its share price decline by 1.5 per cent in the past 30 days, and fall by 4.4 per cent in the past 90 days.

In addition, analysts have lowered their earnings estimates for the next 12 months by 6.9 per cent. The primary trend for Bird is down.

This doesn’t mean that Bird Construction will necessarily continue to slide, but investors should always be aware of a stock’s trend.

A momentum strategy is based on a simple rule: Buy stocks that have performed the best, and sell stocks that have performed the worst.

Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc. in Hamilton. michael@wickhaminvestments.com

 

Stocks with negative price momentum

Name Ticker Pr. Chg. (30 days) % Pr. Chg. (90 days) % EPS % Chg.
SouthGobi Resources SGQ-T -22.47 -53.69 -23
Imax Corp. IMX-T -9.61 -8.66 -0.5
CML Healthcare CLC-T -9.15 -18.21 -1
Tim Hortons Inc. THI-T -5.8 -6.46 -0.1
Uni-Select Inc. UNS-T -4.18 -7.66 -5.3
Brookfield Office BPO-T -3.44 -4.26 -1
Teck Resources TCK.B-T -3.29 -21.52 -0.1
Torstar Corp. TS.B-T -3.11 -17.63 -4.1
Quebecor Inc. QBR.B-T -2.48 -10.03 -6.2
Astral Media ACM.A-T -2.38 -1.34 -1

Source: Bloomberg

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  • BDT-T
  • SGQ-T
  • IMX-T
  • CLC-T
  • THI-T
  • UNS-T
  • BPO-T
  • TCK.B-T
  • TS.B-T
  • QBR.B-T
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Live Discussion of QBR.B on StockTwits
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