What are we looking for?
Canadian companies that have been negatively affected by the Brexit sell-off, yet have outperformed their peers year to date, offer sustainable dividends and trade at a discount to the Street consensus.
The screen
Britain's decision to leave the European Union caught markets off guard last week, triggering global financial volatility across all asset classes, with the majority of stock market indexes ending the week in the red. Domestically, the S&P/TSX composite index fared relatively well compared with S&P 500 as losses across the board were countered by considerable gains across materials and utilities sectors, where gold soared to its highest level in two years.
Companies heavily exposed to Europe, or ones generally sensitive to global trends experienced significant sell-offs post-Brexit. As the reality of the Leave vote settles in, and its potential impact on Britain's labour, trade and capital flows unfold, market volatility may linger over the coming weeks. Haven assets such as gold may continue to rally, as broad market indexes suffer.
Our screen attempts to highlight TSX-listed companies worth considering over the upcoming sessions as markets adjust to the new realities. We exclude materials and utilities, looking for companies that have outperformed their respective sectors post-Brexit and on a year-to-date basis, with a history of consistent dividends and the free-cash-flow growth potential to maintain – if not increase – their payouts.
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What did we find?
Our screen yields nine companies across a diverse range of sectors. New Flyer Industries Inc. – a regional transit bus and motor-coach manufacturer and parts distributor – and Magellan Aerospace Corp. – a components supplier to the aerospace industry – are trading at the highest discounts to the average Street price target. Metro Inc. offers the lowest dividend yield amongst our screen, yet has the largest expected dividend growth.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.