Just when one thinks the worst is over, markets continue to bring pain to investors. These can be confusing times, especially as we witness large companies (in the billions and even trillion in market caps) and even quality companies with strong cash flows show large downward swings in their share prices. Further, the market volatility in the past months has coincided with earnings season, where we have seen single-day downward swings in the 20, 30, and even 50 percent range. While some of these large downward moves in some stocks may be justified, many names have been swept with the tide of the overall market and we believe this presents an opportunity for new cash. 

We have been getting many questions in our Q&A service about what names we have our eyes on that have good recovery potential with strong expected underlying business growth. To address this, we thought a screener would be a good place to start.

For this month’s screener, we look for stocks that have:

• Declined by at least 40% from their 52 week high

• 1- and 2-year analyst consensus estimates of earnings per share (EPS) growth of at least 25% 

• Market capitalization of $100 million

Here is the screener below:

It is a very simple screen, but we think it does a good job of narrowing down the TSX and TSX Venture to just 60 names with over $100 million market cap. The idea here is that names with strong earnings growth (greater than 25%) are more likely to have their shares recover from an unjustified drop in price. Readers should note that the criterion for “1 & 2 year” EPS growth of at least 25% means both EPS growth estimates have the same base of EPS over the last twelve months. This ensures that we are screening for companies that are estimated to at least show an increase of 25% in EPS in year one and at least maintain that EPS in year two. 

We have also included (where applicable) a “Net Debt To EBITDA” column as a bonus to filter for names with strong balance sheets (low debt after subtracting cash on the balance sheet relative to operating cash flows). Generally, anything below 4-5x EBITDA is considered decent, however, we would not use it as a be-all-end-all metric. 

As always, any companies listed on these screens are not an endorsement, but rather a starting point to help investors narrow down their options in their search for new ideas.  

Knowledge pays the best dividends.

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