In this edition of ‘Stock Teasers’, we are going to be looking at Canadian stock outliers using a unique screener in each edition. The screeners have two main variables, of which will change each time, and the end goal is to find a group of stock outliers on the graph and identify why they might be outliers.

Canadian Stock Outlier Screener

We have used the following variables across the Canadian stock universe: Trailing twelve-month buyback yield and 5-year EBIT CAGR. Combining two variables gave investors a good picture of how fast companies grew their earnings, and how much of that value has been returned to shareholders in the last five years. By looking at the compounded annual growth rate (CAGR) in earnings before taxes (EBIT) over the last five years and buyback yield, investors could seek businesses that balance well the upside potential and downside protection.

We have outlined a set of stocks below that we have identified as ‘outliers’ on the scatter plot and drew special notice to one major outlier. This green-shaded area indicates stocks that offer a combination of above-average growth and capital return.

Let’s take a closer look at some of the stocks which encompass this section of the graph. We can see Agnico Eagles Mines Limited (AEM), Wheaton Precious Metals Corp (WPM), ARC Resources Ltd. (ARX) and MEG Energy Corp. (MEG) are in this area. The common theme between these names is that they do have a great 5-year growth record relative to the rest of the companies.

A brief commentary on recent performance and an overview of what these companies do that may be driving these outlier growth estimates:

Agnico Eagle Mines Limited (AEM): operates as a gold mining company that produces precious metals with operations across Canada, Australia, Finland and Mexico. Growth in both topline and earnings are solid in the last five years, driven through a combination of organic growth and acquisitions. AEM’s investment prospect has been de-risked meaningfully as the company moves to the development stage and generates healthy cash flow.

Wheaton Precious Metals Corp (WPM): is a precious metal producer. The company offers investors cost predictability, direct leverage to increasing precious metals prices and a high-quality asset base. WPM’s royalty-like business model is highly capital-light, and cash-generative, the company currently has a net cash of $830 million, which would support dividend growth over the next few years.

ARC Resources Ltd. (ARX): Acquires and develops crude oil, natural gas and natural gas liquids in Canada through its interest in the Montney basin located in Alberta and northeast British Columbia. ARX has cyclicality in revenue and earnings. Over the last few years, ARX experienced a decent tailwind due to record energy prices and favourable operational leverage. The company is returning capital through dividends and buybacks with a combined yield of around 6% on the trailing twelve-month basis.

MEG Energy Corp (MEG): Operates as an energy company that utilizes steam-assisted gravity to extract and produce thermal oil in its Christina Lake Project in the southern Athbasca oil region of Alberta. The company has had a 54% EBIT CAGR in the last five years due to favourable commodity prices and a significant improvement in profitability profile. MEG also allocated capital in a disciplined manner by paying down debt and buying back shares aggressively.

Common Theme Among Canadian Stock Outliers

We hope that readers enjoyed this edition of ‘Stock Teasers’ talking about some of the Canadian stock outliers for 5-year EBIT growth and trailing twelve-month buyback yield. A common theme among the stocks we highlighted is the meaningful improvement in earnings due to a favourable commodity prices environment and positive operational leverage. These factors could hugely magnify operational results either positively or negatively (in a down cycle). Investors should be mindful of the inherent cyclicality of these businesses. For other editions of our ‘Stock Teasers’, check out this latest blog on Stock Market Gems from /r/CanadianInvestor!

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