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A lot has been going on in the markets recently, especially in Canadian markets. First oil was cut in half, then materials continued the steady decline and just recently, global market panic has made its way through the world. It seems like there has been no end to the pain for Canadian markets but while we view the recent market panic as more psychological and an unavoidable re-pricing of global growth expectations, we think the oil environment may be here to stay for a while. With the price of oil cut in half and many companies taking on debt in an environment where the assumed price of oil was $80 to $100, there could be a lot of names that are in a cash flow pinch. We tried to find some of these in this months filter.

This filter looks at companies operating in the energy sector (according to the Global Industry Classification Standard or GICS) that trade on the TSX. We kept the fundamental filters fairly simple and are only looking at companies that have interest coverage of less than 1.5 and total debt to equity of over 35%. Interest coverage, or times interest earned, is calculated as EBIT divided by interest expense and essentially tells an investor how many times operating earnings can pay the interest charges. The higher the ratio, the better the ability the company has to service debt.  We used the debt to equity ratio of 35% to find companies that have a material amount of debt relative to their size to help rule out any names that may have an ability to quickly reduce the debt load if needed. The screen parameters follow:

• GICS sector name = Energy
• Exchange name = TSX
• Times Interest earned < 1.5 (last twelve months)
• Total debt to total equity > 35% (Most recent quarter) 

The filter returned 20 stocks that could either have a tough time navigating the current environment or may need to make some substantial changes to adapt. Crescent Point Energy is one that jumps out at us with a recent equity raise and subsequent dividend cut. Not all of these names will face a cash crunch and others may still do quite well with any rise in the price of oil but with the lower oil prices and less financial flexibility, we think these names deserve close scrutiny by investors.  Don’t forget to sign up for the blog below for updates on new filters or click here to sign up for a free month of access to investment research reports, model portfolios and investors questions and answers.