What are we looking for?
Top-ranked, large-cap North American companies as measured by the regional rank of four Thomson Reuters StarMine Models.
Thomson Reuters StarMine Models are a series of proprietary strategies developed by a team of quantitative analysts focusing on the underlying characteristics of a company and how these characteristics can be manipulated to become predictive in nature.
Of the 15 StarMine Models, four have been utilized in today's screen, giving an overall picture of a company's earnings potential and ability to outperform the broader market. We limit our search to companies with a market capitalization of at least $1-billion (U.S.).
The first model presented is the Combined Alpha Model, which encompasses all StarMine models and weights the models accordingly based on regionally specific characteristics and themes. To be included, companies must score at least a 90 out of 100. (All model scores rank each company among their peers in the region of North America.)
The next three models can be summarized as follows:
- Earnings Quality Model focuses directly on the sustainability of a company’s earnings by taking into account accruals, cash flow and operating efficiency metrics;
- Credit Combined Model is an overall indicator of credit risk incorporating structural default predictions, accounting ratios indicative of overall credit health and a text-mining component assessing early warning distress indicators throughout various corporate communications;
- Smart Holdings Model ranks a stock based on predictions of future changes in institutional share ownership.
For these three models, only companies that score at least 80 are included in the screen.
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What did we find?
The results yielded 14 companies, all of which have seen positive year-to-date total returns in 2017.
YY Inc., received strong model scores across the board, which translates directly into a 88.6-per-cent total return so far in 2017. The company, which trades as an American depositary receipt on the Nasdaq, is a social platform that engages end users in real time group activities and is based in Guangzhou, China.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Ryan Gottschalk is an account manager at Thomson Reuters.