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Number Cruncher

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

Entry archive:

Twenty stocks with strong earnings and lower volatility

IAN TAM

What are we looking for?

Companies that have beaten earnings expectations with recent low volatility in total return.

The screen

With the second-quarter reporting season out of the way, savvy investors are likely paying attention to companies that have surpassed analysts’ expectations. These companies often show positive price returns after reporting dates, reflecting unexpected market information that rapidly gets priced into a stock’s value. That said, looking at just earnings surprise is often a roller-coaster ride ripe with volatility as companies who beat estimates one quarter can just as easily miss estimates in the next. To balance out this volatility, this week I used Morningstar CPMS to create a model that ranks stocks on the following factors:

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These TSX sectors have historically outperformed in the fourth quarter

KHALED ENIBA

What are we looking for?

Seasonal trends for the S&P/TSX composite index – aggregate and sector-specific – over the past 15 years, focusing on the period from Oct. 1 to Dec. 31.

The screen

We revisit historical performance of the S&P/TSX composite and various sector subindexes during the fourth quarter of the calendar year. Seasonality reflects the market’s tendency to produce similar patterns throughout the same period over different years. This approach does not take any fundamental or technical factors into consideration.

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A portfolio of Canadian stocks that focuses on downside protection

EMILY HALVERSON-DUNCAN

What are we looking for?

Quality Canadian stocks for the investor focused on capital preservation.

The screen

In times of market uncertainty, I often like to remind myself of famed investor Warren Buffett’s first two rules of investing. Rule No. 1: Don’t lose money. Rule No. 2: Don’t forget Rule No. 1.

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Eight quality Canadian large-cap stocks for the long haul

PETER ASHTON

What are we looking for?

Canadian large-cap stocks with profitable and efficient businesses.

World stock markets have enjoyed a strong performance over the past eight years with the current bull market now among the longest in modern history. Many investors have reasonably begun to wonder how much longer the current bull market has to run and how they might best position themselves in the event of a correction or bear market. In this environment, picking quality stocks for the long haul takes on increasing importance. Large, established companies that generate consistent profits with low operating costs provide a margin of safety for conservative investors.

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Fifteen U.S. ‘sin’ stocks with rising profits

Ian Tam

What are we looking for

Sin stocks with growing earnings in the U.S. market.

The screen

U.S. President Donald Trump certainly isn’t shy in his intentions with responses to countries such as North Korea building up their weapons arsenal. Keeping with this theme, this week I used Morningstar CPMS to create a strategy that looks at what investors deem as “sin” stocks, which include such industries as weapons and aerospace, alcohol, tobacco, and gambling. The strategy ranks stocks from these sectors based on the following factors:

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These seven U.S. retailers look set to gain from NAFTA talks

Hugh Smith

What are we looking for?

Companies that will potentially benefit from a renegotiated North American free-trade agreement.

The screen

Renegotiations between Canada, the United States and Mexico begin in Washington over NAFTA. Most of U.S. President Donald Trump’s gripes with NAFTA in its current form stem from his protectionist stand. However, there is a free-trade initiative that he is pushing on Canada and Mexico that would benefit Canadian and Mexican consumers. Americans are able to import $800 of goods bought online duty-free. Mexicans only get a $50 allowance, and Canadians have one of the lowest thresholds in the world at only $16. Mr. Trump’s administration is pushing both countries to raise their limit significantly to match the United States’ limit. It’s easy to see how this would be beneficial to Canadian and Mexican consumers, but also U.S. online retail giants such as Amazon. We screened for U.S. retail companies that would benefit from this proposed change.

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Eleven U.S. stocks with sustainable, rising dividends

Jean-Didier Lapointe

What are we looking for?

High, sustainable and growing dividends among U.S. companies.

The screen

We have screened our U.S. and ADR (American depositary receipt) universe of stocks with the following criteria:

  • A minimum market capitalization of $10-billion (U.S.);
  • A return on capital of 10 per cent or higher;
  • Positive free cash-flow to capital ratio. 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 positive figure is good – 5 per cent and above is excellent;
  • A dividend payout of 100 per cent or lower;
  • A dividend yield of 2 per cent or higher;
  • A positive dividend growth rate on the one-, two-, three- and four-year horizons;
  • Increasing earnings per share over 12 months (not shown in the table).

More about StockPointer

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Seven dividend gems in a lacklustre Canadian index

SCOTT CLAYTON

What are we looking for?

Canadian dividend payers whose share prices have outpaced U.S. markets.

The screen

The S&P 500 index is up about 60 per cent from its prerecession peak in October, 2007. By contrast, the S&P/TSX composite index is at a virtual standstill since it hit its prerecession high in June, 2008. That reflects its high proportion of oil and other resource stocks. But some Canadian equities have posted the same sort of outsized gains as U.S. markets. Beyond that, a select few have moved even higher – as well as offering highly sustainable dividends.

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How Canadian REITs stack up in terms of safety and value

Sean Pugliese

What are we looking for?

Rising interest rates have sparked a sell-off in the Canadian REIT sector recently. This pullback prompted my associate, Allan Meyer, and I to be opportunistic and take a closer look at the sector using our investment philosophy focused on safety and value.

The screen

We started with Canadian-listed real estate investment trusts with a market capitalization of $1-billion or more. This can be viewed as a safety factor as larger companies tend to be more liquid and stable.

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Eight U.S. restaurant stocks that are looking oversold

PETER ASHTON

What are we looking for?

Well-valued U.S. restaurant chains after the recent sell-off.

In 2016, U.S. consumers for the first time spent more in restaurants than in grocery stores. This is the result of a long-term trend in which the number of restaurants and bars in the United States has increased by 30 per cent in the past 15 years. In the past year, the Dow Jones U.S. restaurant and bar index has increased by more than 14 per cent, but has had a rough summer since hitting a 52-week high on June 5. Since early June, the index is off by almost 7 per cent. With the stock price now trading below both the 50-day and 21-day moving averages, the U.S. restaurant sector is looking oversold.

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Eleven Canadian stocks with solid fundamentals that analysts ignore

IAN TAM

What are we looking for?

Stocks with little analyst coverage.

The screen

When analysts from the capital-markets divisions of our largest financial institutions revise their projections for a company, investors often react, resulting in a move in stock price. But what about companies that are not covered by an analyst? This week, I use Morningstar CPMS to create a strategy the looks specifically for stocks with very little analyst coverage, using reported metrics only. Looking exclusively at reported metrics ensures an unbiased view of the company’s fundamentals, without relying on the opinions of analysts covering the company. The strategy ranks stocks on the following factors:

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Fifteen large-cap stocks built to weather the storm

Paul Hoyda

What are we looking for?

Large-cap North American companies that have positive cash flow, with strong debt-to-equity and profitability ratios.

The screen

North American equities have continued to perform strong throughout the summer. As the Dow Jones Industrial Average flirts with 22,000, investors continue to wonder whether the party will soon come to an end. To protect their portfolios from a possible pullback in the market, investors may gravitate toward those companies that can weather the storm.

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Six quality TSX small-caps that may have slipped under your radar

JEAN-DIDIER LAPOINTE

What are we looking for?

High-quality Canadian small-cap stocks that might have slipped under your radar.

The screen

We screened our Canadian stocks universe using the following criteria:

  • A market capitalization of more than $100-million but less than $1-billion;
  • An economic performance index, or EPI (return on capital divided by cost of capital) greater than 1.0. 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);
  • A positive EPI change over the past 12 and 24 months;
  • A return on capital greater than 8 per cent;
  • A positive return on capital change over the past 12 and 24 months;
  • A positive sales growth over the past 12 and 24 months;
  • A free cash-flow-to-capital ratio of 2 per cent or higher. 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 positive figure is good, 5 per cent and above is excellent;
  • A positive six-month price performance.

More about StockPointer

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These six Canadian dividend stocks look set to rise with the loonie

SCOTT CLAYTON

What are we looking for?

Canadian dividend stocks set to rise alongside the loonie.

The screen

Rising interest rates, Canada’s strong economy and U.S. political uncertainty should continue to lift the loonie. The trend will benefit importers, if few others. Today’s search starts with Canadian stocks set to profit from a rising dollar – either because of their heavy foreign supply chains, or their U.S. and international travel offerings.

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These 15 stocks offer a good mix of growth and safety

IAN TAM

What are we looking for?

Short-term earnings growth in companies with a reasonable risk profile over the long term.

The screen

This week, I use Morningstar CPMS to create a hybrid strategy that looks for companies with short-term growth in earnings, but also exhibit lower medium and long-term price beta. The aim for this strategy is to take advantage of short-term price movements while still maintaining a reasonable risk profile by investing in companies that exhibit lower sensitivity to the S&P/TSX composite index. Specifically, the strategy ranks stocks on these factors:

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With these 10 Canadian dividend stocks, cash flow is king

Khaled Eniba

What are we looking for?

Attractively valued Canadian securities, generating strong free cash flows to sustain dividend growth, while retaining the ability to invest in their core business.

The screen

We screen for companies providing a sustainable and consistent income stream, with the potential to grow dividends, while maintaining the versatility needed to invest in their business through production expansion, developing new products, or reducing debt. Our goal is not necessarily to find stocks paying attractive yields, but ones capable of growing their dividend while maintaining their payout rate.

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Venturing beyond valuations: An attractive portfolio of 13 Canadian stocks

EMILY HALVERSON-DUNCAN

What are we looking for?

Strong-performing Canadian stocks that are either extremely overvalued or extremely undervalued.

The screen

It is not uncommon in today’s market to hear concerns that stocks are overvalued. Valuations (measured by price to earnings) have been trending higher and as such can give the impression that stocks are too expensive. The question remains: Is it still possible to find a solid portfolio of stocks in such an extreme environment?

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Thirteen U.S. small-cap stocks poised to outperform

Peter Ashton

What are we looking for?

U.S.-listed small-cap stocks that look poised to outperform.

Over the long-term, small-cap stocks should outperform their large-cap counterparts since investors demand a higher level of return to justify the higher risk that goes along with owning small caps. However, over the past five years, large-cap stocks making up the S&P 500 have had a nearly identical performance to the small-cap constituents of the Russell 2000 index.

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These 13 Canadian companies are growing at a reasonable price

IAN TAM

What are we looking for?

Canadian companies growing at a reasonable price.

The screen

This week, I use Morningstar CPMS to create a GARP (growth at a reasonable price) strategy with a tilt toward quality and low volatility for investors who prefer not to deal with the roller coaster that often comes with short-term growth. The strategy ranks stocks on:

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A top-down search for Canadian value investments

HUGH SMITH

What are we looking for?

Value investments in Canada’s most attractive sector.

The screen

Investments can be screened for using either a bottom-up, or a top-down methodology. In a bottom-up screen, company-level attributes that are thought to make a stock a good investment are selected, and then an entire universe of stocks are screened on these attributes. In a top-down screen, macroeconomic or sector-wide forecasts are used to identify the most attractive geographical areas or economic sectors. Stocks are then chosen within these favoured countries or sectors, or exposure can be gained passively by simply buying an index fund.

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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

Paul Hoyda, CFA

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Paul Hoyda, CFA, is a market specialist in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.

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.