2022 was an interesting year to watch from the long-term investors’ point of view, as it is only in tough times that we can test the managerial talents of a company. This is an opportunity for investors to evaluate whether the management of their portfolio companies play offence by actively acquiring competitors at a good valuation, buying back their own shares or play defence by holding more cash and paying down debts. Over time, these decisions could have a tremendous impact on the long-term shareholders’ returns.

Below we have screened for companies with the following criteria:

• Repurchased shares of more than 5% of the market cap in the last twelve months
• Market cap larger than $100 million
• Net debt to EBITDA ratio below 3.0x

The criteria above reflect companies that have repurchased their shares for cancellation of more than 5% of the shares outstanding within the trailing twelve-month period. We like share buybacks for a few reasons: 1) Management believes shares are currently undervalued 2) Management is disciplined in allocating capital and shareholder-friendly by unlocking that discount to intrinsic value through a safe and tax-efficient manner 3) It is psychologically comfortable for investors to continue owning the stock when it goes down, as the lower the share price drops, the more shares the company can repurchase given the same amount of dollars spent.

Here is the screener:

In addition, having an appropriate debt level, and a healthy financial position not only lowers the company’s cost of capital but also helps its investors sleep better at night. This is even more critical as interest rates have gone up recently, making it more expensive for companies to borrow. We prefer companies that are over $100 million in market cap, as these companies have proven themselves to be more mature, self-sustainable entities.

Members will recognize some of the names that we cover in our Model Portfolios and coverage list such as: TFI International Inc. (TFII), Gildan Activewear Inc. (GIL).

It is critical to note that although we do like accretive acquisitions as an offensive strategy. However, it takes years to evaluate whether those M&A deals make sense strategically or if management overpaid just for the sake of expansion. Therefore, we think share buybacks are one of the safest ways to return capital to shareholders in a tax-efficient way, given that these buyback programs are done when shares are traded at a discount to intrinsic value.

Lastly, these companies on the list are not recommendations, but rather a starting point that helps investors generate potential investment ideas. You can view our previous screener blog here.

Take Care,

Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.