5i Filter – High Demand, Low Debt

5i Staff Jan 08, 2015

With both analysts and retail investors fearing rate hikes in 2015, this months 5i filter is focusing on companies that carry low debt in their corporate structure, with a focus on short-term debt coverage, that are able to turn inventory into sales very quickly throughout the year. Hikes have been held off in both the US and Canada, but the speculation of these raises has been a factor in the volatile markets as of late.

The operations of these companies should involve more liquid assets that do not have a long turnaround time which helps to further reduce balance sheet risk as the companies will be continually generating cash flow to pay debt obligations, opposed to a company that may be reliant on a handful of large contracts. The low debt and good balance sheet liquidity should protect the names in a downturn. The specific metrics we used for this screen include:

  • Market Capitalization >500M
  • Annual Inventory Turnover Between 2-10
  • Current Ratio >2
  • Debt/Common Equity <40%
Ticker Company Name Company Market Cap
(CAD)
Total D/E, Percent
(FY0)
Inventory Turnover
(FY0)
Current Ratio
(FY0)
NDQ.TO Novadaq Technologies Inc 982,842,657 0.0% 4.65 21.72
AGI.TO Alamos Gold Inc 1,218,984,737 0.0% 3.87 18.92
AVO.TO Avigilon Corp 860,220,376 0.0% 5.21 7.55
SSO.TO Silver Standard Resources Inc 540,809,203 22.2% 2.49 6.61
WPK.TO Winpak Ltd 2,088,283,752 0.0% 5.55 5.39
DDC.TO Dominion Diamond Corp 1,798,794,379 0.3% 2.34 5.04
FVI.TO Fortuna Silver Mines Inc 748,330,082 1.0% 6.75 4.95
LUC.TO Lucara Diamond Corp 751,150,776 0.0% 4.46 4.79
PAA.TO Pan American Silver Corp 1,805,416,215 3.0% 2.52 4.77
ELD.TO Eldorado Gold Corp 5,673,171,430 11.5% 2.71 4.22
DML.TO Denison Mines Corp 556,307,393 0.0% 5.32 4.11
AEM.TO Agnico Eagle Mines Ltd 7,241,491,491 36.8% 2.68 3.79
BTO.TO B2Gold Corp 2,101,153,593 18.8% 6.78 3.79
IMG.TO IAMGOLD Corp 1,394,597,599 22.6% 2.88 3.42
K.TO Kinross Gold Corp 4,386,561,509 35.2% 2.20 3.37
GIL.TO Gildan Activewear Inc 7,923,153,184 7.8% 2.47 3.33
RETa.TO Reitmans Canada Ltd 500,579,239 1.7% 3.72 2.80
AUQ.TO AuRico Gold Inc 1,123,284,487 14.1% 2.81 2.56
CCO.TO Cameco Corp 7,327,683,021 25.9% 2.48 2.49
RON.TO Rona Inc 1,558,634,238 10.6% 3.80 2.45
WEF.TO Western Forest Products Inc 1,056,006,185 23.1% 6.14 2.34
TIH.TO Toromont Industries Ltd 2,130,265,851 23.0% 3.67 2.18
IFP.TO Interfor Corp 1,385,991,550 28.2% 7.61 2.07
XTC.TO Exco Technologies Ltd 504,766,109 11.5% 8.05 2.00

 

This screen covers all industries, but with the screen searching for high product demand and low debt, the results largely included materials, industrials and a few retail operators & manufacturers.

We also see many of our covered equities, with investors’ favourite stock to hate, Avigilon, near the top of the list. Dorel Industries, Exco Technologies, Winpak and Gildan Activewear are also represented. We find the high number of materials names interesting and feel that in this type of environment, strong balance sheets are the way to go for the sector. When/if materials prices turn around, these companies should see little drag on earnings and lots of opportunity to reinvest their cash flows (or even borrow) into more growth projects.

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