What are we looking for?
U.S. and Canadian companies with a combination of positive stock price momentum, upward analyst revisions and high earnings quality.
The screen
I used the Thomson Reuters StarMine percentile-based quantitative models to screen for the criteria above. Each model parameter screens for scores of at least 85; this indicates that the security has a better ranking than 85 per cent of companies in their country.
The Price Momentum model ranks stock price performance on a short- to long-term basis. The score is amplified for companies that have steady upward price movement as opposed to sudden big upswings. The Analyst Revision model looks for changes in analyst sentiment. When earnings and revenue estimates are revised upward, the company ranks higher.
The Earnings Quality model seeks companies with reliable and persistent earnings, positive cash flows and high operating efficiency. To complement this model, I filtered for companies that have an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of at least 20 per cent.
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What did we find?
I found 12 companies that fit my screening criteria using the Eikon equity screener.
Enghouse Systems Ltd. is a Canadian-based software services company that acquires and builds enterprise software across diverse industries, such as transportation, oil and gas utilities and telecommunications companies. Enghouse made its second-largest acquisition ever last month by buying an electronic invoice processing and management software firm. Their plan is to integrate and cross-sell this service with their current offering and boost profitability.
Electronic Arts Inc. (EA) is a developer and distributor of video games across gaming consoles, PCs and mobile phones. The company owns brands such as Mass Effect and Battlefield and they license rights to develop games for the NFL, FIFA and Star Wars. EA has been heavily investing in its mobile division as mobile device gaming is gaining market share in the industry.
Investors are advised to do their own research before investing in any of the companies listed here.
Charles Martin, CFA, works in the financial and risk unit of Thomson Reuters and specializes in asset management.