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Number Cruncher

Stock screens for investment ideas from professional investors. Exclusive to subscribers of Globe Unlimited.

Coins and green plant isolated on white (Leonid Yastremskiy/Getty Images/iStockphoto)
Coins and green plant isolated on white (Leonid Yastremskiy/Getty Images/iStockphoto)

Number Cruncher

15 Canadian stocks that offer stable profit growth Add to ...

What are we looking for?

Predictability. With profits.

The goal today is to find stocks that offer growth at a reasonable price.

These stocks typically represent companies with records of expanding revenues and earnings.

How we did it

Our friend Craig McGee, senior consultant at Morningstar Canada, provided us with a peek inside Morningstar’s Predictable Growth model.

The model looks for stocks that offer good value based on their price-to-earnings ratios.

It also favours stocks with rising book values and earnings growth that doesn’t vary too much.

Finally, it likes stocks that have high re-investment rates – essentially a measure of how much of the company’s earnings are being plowed back into the organization, providing the fuel for future growth.

To find the stocks in today’s list, Mr. McGee screened all Canadian stocks, but dropped ones that fell in the bottom half of the market based on their average monthly trading volumes.

This tilts the field in favour of larger, more liquid companies.

The Predictable Growth strategy is based on a portfolio of 30 stocks. The list shows the top 15.

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia.

Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers.

CPMS figures cover more than 95 per cent of the investable North American stock market.

What we found

A well diversified list of non-obvious contenders that includes both investment bank GMP Capital and T-shirt maker Gildan Activewear.

Mr. McGee says the CPMS Predictable Growth model is leading his firm’s Canadian strategies so far this year with a return of 8.1 per cent, well above the 3.2-per-cent gain in the TSX composite. Since its inception on Dec. 31, 1985, the model has posted a annualized total return of 13.8 per cent compared with 8.3 per cent for the index.

As always, you should do your own research before buying any of the stocks listed here.

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Follow on Twitter: @IanMcGugan


Top 15 stocks in CPMS Predictable Growth Portfolio

Rank Company Symbol Price to
2013 EPS
1 Canaccord Financial CF-T 9.7x
2 Industrial Alliance IAG-T 11.5x
3 Transcontinental Inc. TCL.A-T 6.1x
4 Valeant Pharmaceutical VRX-T 12.1x
5 MacDonald, Dettwiler MDA-T 11.9x
6 Home Capital Group HCG-T 8.3x
7 CCL Industries Inc., B CCL.B-T 17.4x
8 Gildan Activewear GIL-T 13.1x
9 Sun Life Financial Inc. SLF-T 11.3x
10 Genworth MI Canada Inc. MIC-T 7.5x

* Grades relative to 733 stocks in the CPMS Canadian universe; A = low variability, E = high variability. Source: Morningstar Canada


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