Number Cruncher: Fifteen stocks only a Santa contrarian could love

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 What are we looking for?

We are in the traditional Santa Claus rally season when stocks tend to rally after tax-loss selling abates.

Since beaten-down shares are prime candidates for a Santa rebound, today we are looking for the 15 top ranked INK Edge names that have the worst price performance. While there is no guarantee that the Grinch won’t steal the show and send stocks lower, today we assume that Santa will arrive on schedule.

The INK Edge screen

Our universe includes some 700 TSX-listed stocks that meet minimum size and liquidity requirements. To make the grade in this screen, a stock 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. Within the top 20 per cent ranked stocks, we then look for those with the worst price momentum. Often, the trend is your friend, but here we are assuming a reversal may be in the cards. Clearly, this is a screen that only a Santa contrarian could love.

What we found

AGF Management, which takes the top spot, also has a “sunny” INK Edge outlook, placing it in the top 10 per cent of all stocks ranked in our universe. AGF’s low valuations and strong insider commitment outweigh the stock’s lousy price momentum. The only other stocks on the list that have a sunny outlook are Martinrea and Dorel. The rest are in the mostly sunny INK Edge category and fall between the top 10 per cent and 20 per cent of all stocks ranked. INK Edge sunny and mostly sunny outlook categories are not buy recommendations but are designed to identify groups of stocks that have the potential to outperform the market. As such, diversification remains key. Investors should also conduct further research before buying any of the companies listed here.

 

Top 15 ranked INK Edge stocks with the worst price momentum

1 AGF Management Limited AGF
2 Canaccord Genuity Group Inc. CF
3 Precision Drilling Corporation PD
4 Velan Inc. VLN
5 High Liner Foods Incorporated HLF
6 DREAM Unlimited Corp. DRM
7 Dorel Industries Inc. DII
8 Mainstreet Equity Corp. MEQ
9 Empire Company Limited EMP
10 Avigilon Corporation AVO
11 Chemtrade Logistics Income Fund CHE
12 MCAN Mortgage Corporation MKP
13 Martinrea International Inc. MRE
14 Total Energy Services Inc. TOT
15 Pan American Silver Corp. PAA

Screen run December 18, 2015

Click here for the spreadsheet.

This article also appears in the Globe and Mail on December 22nd on-line, and December 23rd in print.

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