Globe and Mail Number Cruncher: Top INK Edge Energy Stocks

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What are we looking for?

Looking at all the stocks on the TSX, we want to screen for the highest Energy sector stocks. Rankings are determined by the INK Edge V.I.P. criteria (valuations, insider commitment and price momentum). This is the same approach we apply across the broad-market to determine membership for the INK Canadian Insider Index, which is used by the Horizons Canadian Insider Index ETF (HII).

The screen

Our universe includes some 800 TSX-listed stocks that meet minimum size and liquidity requirements. We are looking for stocks in the sector that rank in the top 30% of all stocks in the market. To make the final grade, a stock in the group must trade over $3 and have a market cap of at least $250-million.

We begin by determining a stock’s rank in each V.I.P. category based on equally weighted factors.

Valuations (past 12 months except dividend yield)

-price-to-earnings, price-to-book and price-to-sales ratios;
-enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization);
-price-to-cash flow or price-to-cash;
-shareholder yield (buybacks plus dividends).

Insider (officer and director) commitment

-recent net insider buying;
-personal holdings (excludes shares held for other investors);
-insider intensity, based on the number of insiders buying.

Price momentum

-based on three-, six- and 12-month returns.

Next, each V.I.P. category rank is equally weighted to determine a composite ranking.

In context

The percentile V.I.P. category and composite rankings are in relation to all other stocks in the market. Rankings are between 0 and 100, the higher the better. A composite ranking over 90 goes into the top decile “sunny” outlook category. Today we are looking for the top 15 stocks in this category. However, keep in mind that even if a particular stock has a bright outlook, it could still rain on your portfolio’s parade. Diversification remains key.

What we found

Despite the pounding that oil and gas stocks have endured over the past year, relative opportunity in the group remains scarce.

Top Ranked INK Edge Energy Stocks – Sept. 25, 2015

1. Total Energy Services (TOT)
2. Uranium Participation (U)
3. Gran Tierra Energy (GTE)
4. Precision Drilling (PD)
5. ARC Resources (ARX)
6. Encana (ECA)
7. Enbridge Income Fund (ENF)

Download Spreadsheet with market cap, industry, INK Edge outlook and rankings here.

Only 7 names made the list, and one of them was the Uranium Participation Corporation which we would characterize as a long-term contrarian bet on the revival of nuclear power industry globally. This issuer actually holds uranium as its key asset. Meanwhile, Total Energy Services is the only stock in the sector with a sunny outlook. The fact that only one oil and gas stock ranks in the top 10% of all stocks suggests that it may be a while before we see the group regain market leadership. For those with a high risk tolerance and patience, smaller oil & gas stocks that have financial strength might offer better bang for the buck right now over the long haul than larger names.

Investors should conduct further research before buying any of the companies listed here.

The original article appeared in the Globe and Mail on October 1, 2015. INK Subscribers can also access the comprehensive September INK Edge Top 30 Energy stock list which includes smaller companies here: readers can purchase the INK Edge September Top Energy: Opportunities still hard to find report in our publications store.

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