What are we looking for?
The 10 highest ranking mining stocks based on the INK Edge V.I.P. criteria (valuations, insider commitment and price momentum).
We employ the same approach on a broad-market basis in determining stock membership for the INK Canadian Insider Index, which is used in the Horizons Canadian Insider Index ETF (HII-T).
The screen
Not to be confused with the illegal practice of "insider trading," insider commitment refers to the legally reported buying, selling and ownership of shares in a corporation by an officer or director. We use insiders to confirm that a stock may be offering opportunity on the basis of value or price strength. We also want insiders to help us avoid value traps and overhyped situations.
Our universe includes some 800 TSX-listed stocks that meet minimum size and liquidity requirements. To make the final grade, a mining stock must trade over $3 and have a market cap of at least $250-million.
We begin by determining a stock's rank in each V.I.P. category based on equally weighted factors.
Valuations (past 12 months except dividend yield)
-price-to-earnings, price-to-book and price-to-sales ratios;
-enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization);
-price-to-cash flow or price-to-cash;
-shareholder yield (buybacks plus dividends).
Insider (officer and director) commitment
-recent net insider buying;
-personal holdings (excludes shares held for other investors);
-insider intensity, based on the number of insiders buying.
Price momentum
-based on three-, six- and 12-month returns.
Next, each V.I.P. category rank is equally weighted to determine a composite ranking.
In context
The percentile V.I.P. category and composite rankings of the top 10 are shown versus all other stocks in the market. Rankings are between 0 and 100, the higher the better.
A composite ranking over 90 goes into the top decile "sunny" category. A composite ranking between 70 and 90 goes into the next two deciles, or the "mostly sunny" category. Keep in mind that even if a stock is in the sunny category, it could still rain on your portfolio's parade. Diversification remains key.
What we found
Mining stocks are competitive again. While a few months ago only a handful of miners would have made it even into the mostly sunny group, today there are three in the sunny category and seven in the mostly sunny category.
Moreover, price-momentum is back. Agrium Inc. and Dominion Diamond Corp. have top decile price momentum. Importantly, those price gains are not negated by insider selling.
Another stock with momentum is Osisko Gold Royalties. Given its pricey valuations, it's good to see it ranks well on insider commitment. Right behind is Teck Resources Ltd. which grades well on valuations and insider commitment even as price momentum is relatively poor.
Investors should conduct further research before buying any of the companies listed here.
Ted Dixon, CFA, is CEO of INK Research, which provides research and alerts on insider trading reports in Canada and the United States. Please visit CanadianInsider.com to find out more about INK services and insider reporting in Canada. INK staff may also hold a position in profiled securities.