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number cruncher

What are we looking for?

Since the St. Lawrence Seaway opened this month, my colleague Rob Belanger and I thought we would take a look at some shipping stocks.

The screen

We started with international companies larger than $700-million (U.S.) in market capitalization and we sorted them from the largest to the smallest.

The EV/EBITDA (enterprise value divided by earnings before interest, taxes, depreciation and amortization) is one of the most commonly used valuation metrics. We are looking for a low number.

Debt/EV (debt divided by the enterprise value) can be thought of as the theoretical takeover price if the company were to be bought. In that event, an acquirer would have to take on the company's debt but would pocket any cash its acquisition has in the bank. We are looking for a low number.

The price-to-book ratio, or P/B, gives you some idea of whether you are paying too much for what would be left if the company declared bankruptcy. A low number may mean the stock is undervalued and only companies with a P/B of less than 2.5 are shown.

The sales growth for the past 12 months had to be positive.

The operating margin is a measurement of what portion of a company's revenue is left over after paying for variable costs such as wages and inventory. If a company has an operating margin of 12 per cent it means that it makes 12 cents before interest and taxes for every dollar of sales. We only included companies where the operating margin was positive.

Return on assets gives an idea as to how efficient management is at using its assets to generate earnings. It is derived by dividing the company's earnings by its total assets. A high number is preferred and only those showing a positive number are shown.

Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. A high number is favoured and only companies showing a positive ROE are included.

What did we find?

Only two companies outperformed the averages in six of the seven categories. Founded in Copenhagen in the early 1900s, A.P. Moller-Maersk AS is the largest shipping company in the world. Ship Finance International Ltd., headquartered in Bermuda, has a fleet of 64 vessels that it charters out to third parties with an average charter duration of about 10 years.

Investors should contact an investment professional or conduct further research before buying any of the companies listed here.

Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.

Shipping stocks