This week’s newsletter has a bit of everything, as we have some modifications to our screener, earnings reports, some value calls on the month, and some overbought stocks we thought we’d mention.
First, let’s get to the improvements made to the screener.
Our screener now has an export function
We’ve added the ability to export a completed screen and a comparison to an excel file and even a PDF. We realized that the functionality of the screener differs from screen size to screen size, and many people would rather crunch the numbers in an easy-to-read file.
A quick example? Below is a PDF export of a screen I ran with the following criteria:
- Market cap above $2B
- Payout ratios below 70%
- 5-year dividend growth of a minimum of 8%
- Yield above 3%
Click here to download the sample screen file
Looking to see how it would be for our comparison tool? Here is an export for Canada’s Big 3 telecoms.
**Of note, we are working on getting the headers to transfer to secondary pages. We will update you when this is done.
If you need any help learning how to use this powerful tool, you can just head to the Q&A or the Discord.
Value Calls
If you’re new to Premium, on the first Sunday of every month, we release a set of our “Value Calls,” or what we feel are the best opportunities on our Bull Lists or Foundational Stock Lists at the current time.
Let’s get right into February’s Value Calls.
Allied Properties (TSE:AP.UN)
This one is expected, as we recently added the company to our Dividend Bull List.
Allied reported fourth-quarter earnings, which were in line with company estimates. Net Asset Value (NAV) per unit dropped slightly quarter-over-quarter from $51.50 per share to $50.90 amidst macroeconomic uncertainty. In the quarter, the average net rent per occupied square foot grew by 5.6%.
Diluted Funds From Operations per share grew by 3% while Adjusted FFO jumped by 5.8% year-over-year. The company’s FFO payout ratio increased by 0.1% to 70.8% to close out the year – a solid number and down significantly from bloated pandemic highs.
The key issue in the quarter remains that of net debt to EBITDA, which jumped to 9.8X from 9.4x at the end of last year. Once again, debt (+21.9%) grew faster than EBITDA (17.4%). As we discussed last week, this is getting to be a little high, but with the sale of its non-core assets, it shouldn’t be an issue for long.
The company also released Fiscal 2023 guidance in which it expects to achieve low-to-mid-single digit growth across “same-asset NOI, FFO per unit, and AFFO per unit.” This is the same guidance it issued last year and one it delivered upon.
Overall, we feel the company is one of the more attractive REITs in the country right now, particularly in terms of overall yield, as negative sentiment continues to be prevalent in the office space.
You can click here to read our updated report of Allied Properties.
Brookfield Renewables (TSE:BEP.UN)
It was a mixed quarter for Brookfield Renewables. Q4 Funds From Operations (FFO) of $0.35 per share missed by a penny while revenue of $1.19B beat by $10M.
The company grew FFO by 7.6% in the year, which is lower than its targeted range (double-digits). That said, we know it is a challenging operating environment for utilities, with the cost of debt being materially higher, given the rapid pace of rate hikes.
That said, the business is still well positioned as it is underpinned by highly durable cash flows, with approximately 85% of revenue coming from long-term, inflation-linked contracts, highly recurring service provisions, and a near 100% customer retention rate.
It is worth noting that the company spoke about its relationship with parent company Brookfield Corp and why access to capital is so crucial in this environment. It is one of the reasons why we prefer Brookfield over the rest.
According to BEP, it provides them with a “significant competitive advantage” as by “investing alongside Brookfield’s private funds,” they get “access to scale, long-term institutional capital, allowing us to target sizable deals where there is often limited competition.” This typically comes with better terms and rates for the borrowers like BEP.
Speaking of debt, BEP has no near-term material maturities and has only 3% exposure to floating debt. We know the issues Algonquin Power ran into with its high exposure to floating rate debt (it was over 22%), so it is worth recognizing that BEP’s exposure is inconsequential.
BEP also announced a 5.5% raise to the distribution for a total annual rate of US$1.35 per share.
Earnings results
Many companies featured here reported last week, with even more reporting in the upcoming weeks. So, be prepared for newsletters full of updates! Let’s dig into what happened this week.
Starbucks (SBUX)
After a strong few quarters, the first quarter of Fiscal 2023 was far from a promising start to the year. Earnings of $0.75 per share missed by $0.02, and revenue of $8.71B missed by $70M. It marks the first time the company missed the top and bottom lines in over five years.
Lower-than-expected sales in China (-28% vs -13% expected) were at the heart of the miss. Globally, expectations were for 6.9% same-store sales growth; however, weakness in China led to only 5% growth YoY.
On the bright side, growth in North America was strong, coming in at 10% and topping estimates for 7.6% growth. Starbucks exited the quarter with 36,170 (+459) net new stores.
All things considered, the company did perform relatively well outside of China. With the country getting rid of pandemic-related restrictions and lockdowns, growth in China could prove to be a tailwind in 2023. A
retracement in price because of these results for Starbucks could be a good opportunity to add.
Alphabet (GOOG)
It was a challenging Q4 for Alphabet, which missed on the top and bottom lines. Earnings of $1.05 per share missed by $0.14, and revenue of $76.05B missed by $440M.
The miss is primarily due to a fall in advertising revenue (the company’s largest segment) from $61.22B in Q4 of Fiscal 2021 to $59B this year. Google Search and Youtube revenue also dipped slightly year-over-year. Google Cloud was a bright spot, with 32% YoY growth – that said, it is the company’s smallest segment in terms of revenue and still operates at a loss.
While the company missed estimates, it saw sequential (QoQ) growth across all segments and still exited the year with 10% revenue and & 23% earnings growth.
An interesting point to note is the discussion about AI on the conference call, given the rise of ChatGP. As per CEO Sundar Pichai, Alphabet “has been preparing for this moment since early last year” and is well positioned.
OpenText (TSE:OTEX)
Dividend Bull List stock Open Text delivered a first quarter that beat on both the top and bottom lines. Of note, it is a little confusing with this company as it is already in Q2 of Fiscal 2023, ahead of most companies due to the timing of their Fiscal results. As a reminder, the numbers are in USD unless otherwise stated.
Earnings of $0.89 beat by $0.11, and revenue of $897.4M beat by $20.37M. That said, year-over-year revenue growth only came in at 2.3% when considering currency headwinds.
On the bright side, the company remains a cash flow machine, generating $163M in free cash flow as it exited the quarter with ~$2.8B in cash and cash equivalents.
The record quarter was bolstered by Cloud Revenue (+12%) as it posted its eighth consecutive quarter of cloud organic and annual recurring revenue organic growth.
Non-adjusted earnings have been a little wonky due to the derivates it took on thanks to the Micro-Focus acquisition. If you remember, it took a loss last quarter, and this quarter, it booked a gain – $172 million of pretax unrealized gains on mark-to-market valuations related to derivative transactions in connection with the Micro Focus acquisition.
Despite significantly rebounding off October lows, we still feel OpenText provides strong value today.
You can read our full updated report on OpenText here
Overbought stocks
With this large of a market recovery to kick off the year, it’s not surprising that many stocks here at Stocktrades are now in overbought territory.
If you are unaware of what this is, here is a quick refresher. The Relative Strength Index is a technical indicator utilized to measure the magnitude of the short-term price movements of a stock.
The RSI ranges from 0 to 100. A stock with an RSI of under 30 is deemed “oversold,” meaning recent price changes to the downside may be overdone.
A stock with an RSI of over 70 is “overbought,” meaning recent price changes to the upside may be overdone.
Mat and I often utilize the relative strength index when making purchases. This is certainly not a technical indicator that would change our overall thesis on a company by any stretch. In fact, it only measures price movements across a 14 day period.
However, it can help us when deciding on entry points for companies, as when a company becomes overbought or oversold, there is typically a rebound/fall in price over the short term.
On the Dividend Bull List, Goeasy Ltd is in overbought territory with an RSI of 74. This isn’t all that surprising either, especially with the Bank of Canada’s intentions to pause interest rate hikes. This company has been under severe pressure due to many investors questioning the risks of its loan book due to the rising rates.
Canadian Foundational Stocks Granite REIT, Constellation Software, and Royal Bank of Canada are also overbought. The catalyst here is likely an expected pause in interest rates again, as Granite has been under significant pressure over the last year as a REIT.
Alternatively, what we deem “risk-off” stocks like US Foundational Stock Pepsi and Canadian Foundational Stock Loblaw are almost oversold. This shouldn’t come as a surprise. When the markets shift into a “risk-on” mindset, which has undoubtedly been the case through the first month of the year, defensive options like Pepsi and Loblaw will no doubt be rotated out of.
As long-term investors, we shouldn’t worry too much about these short-term movements in price.
Overall, RSI is an excellent technical indicator that can help investors “time” entry points, to an extent. Overbought stocks often have a period of consolidation or retracement, and oversold stocks often have a rebound in price.
As with most technical indicators, it is never 100%. However, throughout our investing careers, the RSI is one we have learned to rely on.
