How to analyze a Stock for purchase, is NPIFF a buy?

This blog is about more than computers and cyber security. In a Kiplinger’s article by Kathy Kristof she outlined how she sizes up a stock.  I thought it would be fun to put her formula to work and add a few things that I also look at.

I recently purchased Northland Power (NPIFF) which pays a nice 5.53 % dividend. This Canadian company produces electricity from natural gas and biomass as well as wind and solar. Some 60% of its construction and development pipeline projects harness wind. I like green energy and I think the millennials will also. Therefore, I see a bright future for this company.

Using her formula, let’s try to look at the projected earnings for NPIFF to see what they are for the current year and next year. Surf to https://finance.yahoo.com and type in the NPIFF ticker symbol to call up the stock. On the tenth right tab is Analysis so click on that. Unfortunately there is no Analysts data but this will work for other stocks. What she looks at is at the top of the page are per-share earnings estimates for the current and next quarter. Then if you scroll down to bottom of the page you can examine under “growth estimates” which is how fast analysts expect earnings to grow.

She then says, “Before you leave this page, also take a look at the section in the middle titled “earning history” which shows what analysts had expected earnings to be in the recent past. What I like to see is that analysts have either been accurate or have projected low, allowing the company to “beat” the projection. If the column shows a string of negative numbers, it means analysts have overestimated profits and really don’t have a handle on what to expect."

Moving on I will deviate from her formula click on the "Holders" tab. There are some big names that own a lot of NPIFF such as Vanguard, American Funds and so on. If they like the stock it is a good sign that possibly you and I should also. Seeing these big guys investing in the stock gives me a lot more confidence in the company as a holding in my portfolio.

Next click on the second “Chart” tab. What I like to see is that we are purchasing the stock at a lower than normal price for a utility like this. NPIFF is not really a growth stock but a value stock. For example, Amazon and Netflix from birth to today rocketed up in price from the teens to hundreds of dollars per share. If you look at the 5 year history of NPIFF it has bounced around from about a low of 12 to almost a high of 20. Consequently, picking it up at $16 a share seems to be a good price.
Getting back to her formula click on the “Financials” tab and examine the company’s income statement, balance sheet and cash flow statements. As she states it, “you want to see income that’s rising steadily, plenty of cash and short-term investments on the balance sheet, and more than enough free cash flow (the cash left after making the capital expenditures necessary to maintain the business) to cover the dividend.” Another thing I look at is Total Revenue, is it going up? In our case with NPIFF it has almost doubled since 2014 so things are still looking good. A lot of the numbers here are common sense.

• Operating expenses for NPIFF are rising, NOT GOOD
• Earnings Before Interest and Taxes more than double 2014, GOOD
• Income Before Tax, Rising, GOOD
• Income from Continuing Operations, UP, GOOD
• Net Income Applicable to Common Shares, Rising, GOOD

Consequently, looking at the Financials we still like NPIFF! The next step in her formula is also a dead end for NPIFF since it is a Canadian/foreign stock. However, for other stocks here is what she has to say, “go to the Securities and Exchange Commission website ( https://www.sec.gov ) and search for the company’s latest SEC filings. The company’s annual report is called the 10-K. I like to make sure I understand the business and to see what management has to say about the company’s progress and prospects, which is usually in the chairman’s letter up front. I then look at the financial statement in the back where at least three years’ worth of data is reported.” This data may or may not collaborate what Yahoo is reporting. As she points out, “Yahoo is theoretically reporting most of the same numbers. However, Yahoo often picks up “adjusted” earning, which may exclude a laundry list of supposedly one-time items. Sometimes these adjustments are legitimate. Sometimes I think they’re essentially excuses for not doing better."

She next recommends that you glance at the K-1 stock-performance chart, which shows how the company’s shares have fared against competitors over the past several years. The next one I did not know about but is good advice. She says look as the DEF 14A, also known as the proxy statement. In her words, “I want to see a management team that isn’t overpaying itself given its performance. If the company executives are in the top percentiles for pay (this will be noted in the compensation report) but the stock is in the bottom percentiles for performance (from the stock graph in the 10-K), there’s a problem."

A couple of other numbers I look are Insider Activity. This used to be available at Yahoo but all I see is the breakdown of major holders which helps but does not tell you if management is buying stock in their own company. She purchased Costco recently but when I look at the Yahoo “Holders” tab I see that only 0.63% is held by “All Insider”. To me this is a RED FLAG on the stock. For NPIFF we have no data so you will have to use your brokerage account to gather this information. I logged into ETrade and clicked on the “Insider Activity” tab to see all the latest. If you dig you will see that 41.2% of the shares are held by Non-Institutional investors which is GREAT.

Now we move on to “Shares Outstanding” which we want to be reducing or staying the same. This can be found on the “Balance Sheet” at your brokerage. NPIFF shares have increased from 132 in 2013 to 175 in 2017, NOT GOOD. We also look at Long Term debt on the balance sheet. NPIFF has gone from 1,778 in 2013 to 6,996 in 2017, NOT GOOD, but if you look closer Total Assets have gone from 3,063 to 10,281 so they are putting the debt to work, GOOD!

Last thing I like to read is the news on the stock. You can always find an article or two that someone has written which may give you a little more insight into the company. Seeking Alpha is an excellent source for most stocks. For example, https://seekingalpha.com/article/4198302-northland-power-inc-npiff-ceo-mike-crawley-q2-2018-results-earnings-call-transcript?page=1 .
Overall, NPIFF is a mixed bag that I will invest in because I like clean energy!