Craig McGee is a senior consultant at Morningstar Canada.
What we’re looking for
A portfolio of Canadian stocks posting quarterly growth that is expected to continue.
I scanned the CPMS Canadian equity database for the 20 stocks with the best combination of the following metrics:
- Growth of the latest reported quarter’s operating EPS vs. the same quarter from the prior year (Q/Q Latest)
- Growth of the previously reported quarter’s operating EPS vs. the same quarter from the prior year (Q/Q Last)
- Expected growth of the next quarter’s operating EPS vs. the same quarter from the prior year (Q/Q Next)
- Expected growth of operating EPS two quarters in the future vs. the same quarter from the prior year (Q/Q Next-2)
Stocks below $100-million were screened out. All periods must exhibit positive growth, and each sector was limited to no more than five stocks.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers.
CPMS data cover more than 95 per cent of the investable North American stock market. With more than 110 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.
What we found
Using CPMS, I back-tested the strategy to apply the same rules-based approach over the past five years. A portfolio of as many as 20 stocks was equally weighted, and stocks would be replaced if a negative quarter-over-quarter growth figure was reported.
Over the past year, this strategy generated a total return of 66.6 per cent versus 28.7 per cent for the S&P/TSX Composite Total Return Index. For the full five-year period, this approach would have posted an annualized return of 23.2 per cent, while the index came in at 10.4 per cent.
Investors are advised to do their own research before investing in any of the stocks listed here.
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