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Number Cruncher

A value hunter’s guide to Canadian stocks Add to ...

What are we looking for?

Canadian stocks with value appeal.

How we did it

Craig McGee, senior consultant at CPMS Morningstar Canada, took us on a tour of the Morningstar Canada Value Index, which reflects the performance of 30 dividend-paying, Canada-based equities.

To build the index, CPMS uses proprietary rules to screen for stocks with low price-to-earnings ratios, low price-to-book values and recent upward revisions in analysts’ estimates of their future earnings.

More Related to this Story

The index is made up of the 30 stocks with the best combinations of the screening requirements. Each stock makes up an equal portion of the index, and the constituent stocks are refreshed every quarter, based on the latest data.

The accompanying table shows the 20 top-ranking securities in the index that have had no worse than a negative 5 per cent change in consensus earnings estimates over the past 90 days.

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

What we found

Over the past year, the 30-stock strategy posted a return of 26.7 per cent, blowing past the 8.5 per cent result for the S&P/TSX Total Return index. Over the past five years, it produced an annualized return of 10.2 per cent compared to negative 0.9 per cent for the index.

Investors who are interested in following this approach to stock-picking can buy the First Asset Morningstar Canada Value Index ETF (FXM.A-T). Keep in mind, though, that strategies that have worked in the past may not produce similar results in the future.

 

Editor's note: An earlier version of this story suggested dividends were one of the criteria. That is not the case, and this version has been corrected.

 

The Morningstar Canada Value Index

Rank Company Symbol Expected
Yield %
P/E P/CF P/B
1 Transcontinental Inc. TCL.A-T 4.81% 6.38x 3.63x 1.28x
2 TransGlobe Energy Corp. TGL-T 0.00% 5.32x 2.92x 0.96x
3 Power Corp. of Canada POW-T 4.22% 12.57x 2.41x 1.47x
4 Fairfax Financial FFH-T 2.54% 12.14x 10.70x 1.07x
5 Parkland Fuel Corp. PKI-T 6.29% 11.52x 7.09x 3.09x
6 Industrial Alliance IAG-T 2.41% 13.23x 3.12x 1.41x
7 Empire Company Ltd., A EMP.A-T 1.26% 14.20x 6.18x 1.43x
8 Martinrea Int'l Inc. MRE-T 1.17% 12.00x 6.96x 1.71x
9 Cdn. Tire Corp. Ltd. CTC.A-T 1.80% 11.74x 5.16x 1.32x
10 Atco Ltd., I ACO.X-T 1.80% 13.10x 2.83x 1.95x
11 EnCana Corp. ECA-T 4.56% 14.20x 4.31x 2.86x
12 Cogeco Cable Inc. CCA-T 2.48% 9.56x 4.27x 1.63x
13 WestJet Airlines Ltd. WJA-T 1.77% 11.06x 5.47x 1.95x
14 AGF Management Ltd. AGF.B-T 10.12% 16.69x 9.20x 0.93x
15 Magna Intl. Inc. MG-T 1.83% 13.03x 7.60x 1.73x
16 George Weston Ltd. WN-T 2.01% 18.80x 5.83x 2.14x
17 Capital Power Corp CPX-T 6.27% 25.49x 3.83x 0.76x
18 West Fraser Timber Co. WFT-T 0.69% 14.30x 9.79x 2.33x
19 National Bank of Canada NA-T 4.74% 9.17x 6.37x 1.74x
20 Loblaw Companies Ltd. L-T 2.00% 18.49x 7.01x 2.08x

Source: Morningstar Canada

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