Number Cruncher: These 15 stocks mix value, price momentum, insider buying

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What are we looking for?

We are just over halfway to the next the INK Canadian Insider Index semi-annual rebalancing to be implemented on May 20th. A stock already in the Index before the rebalancing date stays so long as it is in the top 30% of all stocks ranked on the basis of our INK Edge V.I.P. criteria (valuations, insider commitment and price momentum). Today, we want to get a sense of the stocks that are candidates to replace any drop-outs from the 50-stock index which is used by the Horizons Canadian Insider Index ETF (HII). To see which names are in top contention for index inclusion, we screen for the top-15 ranked TSX stocks using our V.I.P. criteria.

The screen

Our universe includes some 700 TSX-listed stocks that meet minimum size and liquidity requirements. 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 puts the stock into the top decile "sunny" outlook category. The INK sunny outlook category is not a buy recommendation but is designed to identify a stock group that has the potential to outperform the market.

What we found

Of the top 15, nine stocks are not currently in the Index but are in contention for inclusion this spring: Endeavour Mining (EDV), Barrick Gold (ABX), Klondex Mines (KDX), Indigo Books & Music (IDG), Pan American Silver (PAA), SNC-Lavalin Group (SNC), Andrew Peller (ADW), Spin Master (TOY), and Lassonde Industries (LAS). In terms of opportunity generally, gold and silver miners appear to be growing in relative popularity with insiders.

Click here for the spreadsheet with all 15 names.

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

This article was published on-line for INK Research subscribers and in the Globe and Mail on March 2, 2016 and in the Globe and Mail print version the following day.

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