What are we looking for?
Institutional-investor approved, financially stable, large- and mid-cap stocks trending upward.
Over the past three months, we have seen the investing world move money into safer, low-volatility assets. In the past month alone, North American money market funds saw an inflow of close to US$390-billion, whereas its equity counterparts saw an outflow of US$24-billion. Seeing this shift in investment dollars, we search for safe equity bets in the current market environment that exhibit both strong fundamental and technical characteristics.
- We start by looking at companies headquartered in North America with a market capitalization more than US$1-billion.
- Next, we use the Refinitiv StarMine Smart Holdings for insight into the expected increase in institutional ownership of a company. The Smart Holdings model compares the buying profile of more than 55,000 institutional investors and mutual funds with the fundamental factors of each stock globally. The closer the alignment between the fund’s profile and the stock, the higher the Smart Holdings ranking. In this case, we screen for companies with a Smart Holdings rank equal to or more than 95 (on a percentile scale of 1-100).
- To capture upward price momentum, we use the midterm component of another Refinitiv StarMine model: the Price Momentum model. The midterm component of this model looks specifically at average daily closing prices over the past 10 days compared with those over the past three months, with stocks ranking higher if their 10-day average price is more than their three-month average. We also set this threshold at 95 or higher.
- Finally, as a proxy for financial stability, we use the interest coverage ratio, which is a simple way to see how easily a firm can pay interest on its outstanding debt. The higher the ratio, the less risky the company is perceived to be. In this case, we screen for companies with an interest coverage ratio more than 15 – three times the average of the S&P 500.
More about Refinitiv
Refinitiv is one of the largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.
What we found
Ranked by one-year return, the screen resulted in six companies, with Canadian firms dominating the list. Four of the six are gold mining, exploration and development companies.
Real Matters Inc. is a surprise addition to the list. The firm provides insurance inspection, appraisal, title and closing services to the mortgage lending industry through its platform. The tech firm beat second-quarter estimates on May 6, when it reporting earnings a share of 21 cents, significantly higher than analyst consensus at 6 cents. This resulted in a nearly 8-per-cent rise in its stock price, contributing to the strong midterm price momentum captured in our screen. It is likely that the company is also able to take advantage of the prevailing low interest-rate environment, fuelling greater demand for U.S. mortgage holders to refinance at lower rates in the coming year.
Gold continues to be viewed as a haven asset during market turmoil and the commodity’s strong performance over the past six months can be seen reflected in strong fundamentals for gold mining and development companies such as Kirkland Lake Gold Ltd. and Wesdome Gold Mines Ltd. Kirkland boasted year-over-year revenue growth of 82 per cent during its first-quarter earnings release on May 6. The previous day, Wesdome reported year-over-year earnings growth of 156 per cent for the same first-quarter period.
With most mining-heavy jurisdictions such as Ontario and Quebec deeming gold miners an essential business, with appropriate restrictions, operations of Wesdome and Kirkland do not seem to be greatly disrupted, signalling that there may be more growth on the horizon as gold continues on its upward trend.
Investors are advised to do their own research before trading in any of the securities shown below.
Mansoor Elahi is a customer success manager supporting Refinitiv’s investment and advisory solutions.
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