Michael Cloherty is senior account manager for StockPointer at Inovestor Inc.
What are we looking for?
Materials stocks with positive economic momentum.
The screen
We searched the Canadian materials sector in StockPointer with a minimum market capitalization of $500-million and looked at the following metrics:
– A positive performance spread. This is the difference between the return on capital and the cost of capital. As investors, we want this number to be positive because it reflects wealth creation. It's important to evaluate how much higher the return on capital is versus the cost of capital.
– A positive economic value-added (EVA) change over the past 12 months. An increasing EVA is going to show value generation by a company for investors. EVA is calculated by subtracting capital charges from the net operating profit after tax.
– A positive EVA change over the past 24 months.
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?
Paper, forestry and chemical related companies show good economic momentum in the materials sector. No metals and mining companies made the list mostly because the commodity market made it difficult for them to generate positive EVA growth over the past 12 and 24 months.
An interesting subindustry – and companies to keep an eye on – would be the packaging-related companies: Winpak Ltd., Intertape Polymer Group Inc. and CCL Industries Inc.. Their performance spreads are all greater than 5 per cent, which might offer further comfort to investors. The recent decrease in oil prices – and resulting lower input costs – should help them maintain their economic performance over the coming quarters.
Investors are advised to do additional research prior to investing in any of the companies mentioned.