What are we looking for?
Well priced, low-beta Canadian companies that offer value-creating economic performance.
The screen
We searched all Canadian companies with a minimum market cap of $500-million and filtered for the following metrics:
– Beta below 1.0
– Future growth value divided by market value of total capital (FGV/MV), a ratio that helps determine whether the stock is trading at a discount or premium to the current value of the company's operations. We filtered for a maximum premium of 25 per cent (negative values indicate a discount).
– A price/intrinsic value (P/IV) ratio smaller than 1.0.
– Positive EVA (economic value added) growth over the past 12-month and 24-month periods. EVA is a measure of true economic profit created by a company. EVA is calculated by subtracting capital charges from the net operating profit after tax.
– Economic performance index, or EPI (return on capital divided by cost of capital). A ratio above 1.0 indicates wealth creation (and positive EVA).
– Return on capital above 10 per cent.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic value added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 6,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer (stockpointer.ca) also allows investors to create personalized filters and build custom portfolios.
What did we find?
Of the 19 companies we found, seven operate in the financials sector, with three of the Big Five banks showing up (CIBC and Bank of Montreal met all the criteria, but saw a drop in their EVA in one of the past two years). The three banks show very similar metrics, with Scotiabank offering a mild discount to the other two (FGV/EV).
Somewhat surprisingly, the Canadian IT sector is well represented with four companies. Enghouse Systems shows the strongest economic performance of the group, with the best EPI and return on capital.
Finally, BMTC Group is worth nothing as presenting a healthy mix of value and performance. With a negative beta, and with the second largest discount among our results, it also generates a strong return on capital and the best overall EPI.
Investors are advised to do additional research prior to investing in any of the companies mentioned.