Stingy Investor Contact - Subscribe - Login
  Home | Articles | Screens | Links | SNW | Rothery Report
Tip Sheet
Tip Sheet Archive


High Dividend Yield
  High Yield DJIA30
  High Yield TSX60

Dividends at Risk
  Dividend Risk DJIA30
  Dividend Risk TSX60

Value Ratio Approach
  Value Ratio DJIA30
  Value Ratio TSX60

Graham's Approach
  Graham DJIA30
  Graham TSX60

Other Screens
  Low P/E DJIA
  Low P/E TSX60
  Low P/B DJIA
  Low P/B TSX60
  Low P/S DJIA

Stingy Investor Tip Sheet

Canadian Losers

James Montier recently produced a list of stocks that could result in a 'permanent loss of capital' for investors. He focused on valuation risk, earnings risk, and financial risk. Losses could arise from any one of these risks. Stocks with all these risks may be particularly shaky.

More quantitatively, here are Montier's tests . . .

Valuation Risk:
Price to 10-year average earnings ratio > 16
(I also included stocks with negative ratios.)

Earnings Risk:
EPS(ttm) > 2 times average EPS over the last 10 years.

Financial Risk:
Altman Z < 1.8

I happened to be near my friendly neighbourhood Bloomberg terminal and looked for Canadian stocks that fit Montier's high-risk criteria.

Name	  	    Price   AltmanZ  P/E  P/E10
=================== ======  ======= ===== ======
BAM (BNB)           $10.00    1.75  12.05 -83.33
ENBRIDGE (ENB)      $40.46    1.66  11.12  24.37
INTER PIPE (IPL.UN)  $7.64    1.05   7.64  36.38
CLUBLINK (LNK)       $6.49    0.67  25.96  64.90
Source: Bloomberg Jan 28, 2009

I admit to having some reservations about the list. The Altman-Z score was developed for manufacturing firms. It isn't as good when dealing with other industries. It strikes me that regulated utilities may well be safer (on the financial risk front) than their Altman-Z scores indicate. (An Altman-Z score of less than 1.8 indicates that there is a high risk of bankruptcy in the next 2 years.)

Similarly, Clublink is actually a real estate firm (golf courses) and BAM is an investment company. As a result, I'd not rely on their Z scores either.

So, it's an interesting but imperfect list.

01/30/2009   11:00 PM EST   Permlink   save & shareStocks

About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...