What are we looking for?
Canadian stocks that are positioned to do well over the next six months.
How we did it
Craig McGee, senior consultant at CPMS Morningstar Canada, notes that market activity tends to hit a summer lull and slow down during the second and third quarter each year. As a result, market performance tends to be a bit weaker during those months, before picking up in the next two quarters.
That suggests that now is a fine time to be positioning your portfolio for what lies ahead. Which stocks tend to do best over this period? Mr. McGee ran hundreds of tests with CPMS data dating back to 1985 to find the variables that tend to shine most reliably.
He found that stocks with momentum – rising prices and earnings – are usually the best bets. The accompanying list of 20 Canadian stocks have the most attractive combinations of some of the highest scoring momentum metrics on Mr. McGee’s tests. These metrics include:
-Upward revisions over the past three months to analysts’ forecasts of the upcoming year’s cash flow;
-Strong alpha over the past year (alpha is a measure of a stock’s excess risk-adjusted return versus the TSX composite index);
-A strong, positive change over the past three months in the average price over the preceding six months;
-A high stock price relative to the stock’s 200-day moving average;
-A strong, positive price change over the past 15 months.
Mr. McGee screened out the bottom quarter of the CPMS database, based on size and volume, to exclude stocks that aren’t traded frequently.
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.
What we found
Mr. McGee ran a back-test of the strategy from the end of February, 1999, until the end of August, 2013, assuming the portfolio was refreshed every three months. He found that the portfolio would have generated an annualized total return of 26.2 per cent versus 7.3 per cent for the S&P/TSX composite total return index.
The usual caveat applies: Past performance is no guarantee of future success. Do your own research before buying any of the stocks listed here.
Canadian stocks with strong momentum
|1||Xtreme Drilling & Coil||XDC-T||294.90|
|2||Badger Daylighting Ltd.||BAD-T||810.40|
|3||Storm Resources Ltd.||SRX-T||287.90|
|4||BNK Petroleum Inc.||BKX-T||186.30|
|6||Raging River Explor.||RRX-T||866.90|
|9||RMP Energy Inc.||RMP-T||606.00|
|10||Sirius XM Canada||XSR-T||634.10|
Source: Morningstar Canada
200-day Avg %
|1||Xtreme Drilling & Coil||XDC-T||294.90||10.98%||11.41%||35.37%||56.61%||134.00%|
|2||Badger Daylighting Ltd.||BAD-T||810.40||20.48%||7.22%||23.51%||52.25%||166.00%|
|3||Storm Resources Ltd.||SRX-T||287.90||11.11%||8.24%||32.03%||62.79%||140.00%|
|4||BNK Petroleum Inc.||BKX-T||186.30||41.95%||6.32%||33.18%||62.43%||92.50%|
|6||Raging River Explor.||RRX-T||866.90||10.96%||7.52%||13.29%||41.23%||207.20%|
|9||RMP Energy Inc.||RMP-T||606.00||-3.80%||8.02%||15.35%||39.61%||271.10%|
|10||Sirius XM Canada||XSR-T||634.10||10.00%||7.05%||9.05%||26.56%||142.90%|
|12||Air Canada, B||AC.B-T||915.90||2.50%||10.58%||3.68%||32.44%||234.70%|
|13||Magna Intl. Inc.||MG-T||19,759.40||3.94%||6.10%||20.96%||34.30%||115.40%|
|14||Cdn Energy Services||CEU-T||1,208.80||10.34%||4.79%||22.01%||31.66%||86.20%|
|16||Boyd Group Income Fund||BYD.UN-T||349.10||8.20%||5.20%||16.31%||35.61%||103.40%|
|17||Atrium Innovations Inc||ATB-T||565.30||21.93%||4.49%||12.37%||32.06%||64.80%|
|18||Int'l Forest Products,A||IFP.A-T||677.10||5.67%||6.44%||11.20%||21.63%||137.60%|
- Xtreme Drilling and Coil Services Corp$1.49+0.02(+1.36%)
- Badger Daylighting Ltd$23.07-0.27(-1.16%)
- BNK Petroleum Inc$0.23+0.03(+12.50%)
- AutoCanada Inc$17.45+0.06(+0.35%)
- Raging River Exploration Inc$8.74-0.01(-0.11%)
- Valeant Pharmaceuticals International Inc$122.69+6.33(+5.44%)
- RMP Energy Inc$1.39-0.02(-1.42%)
- Sirius XM Canada Holdings Inc$4.26+0.58(+15.76%)
- Avigilon Corp$11.85+0.09(+0.77%)
- Magna International Inc$45.83+1.79(+4.06%)
- Canadian Energy Services & Technology Corp$3.19+0.14(+4.59%)
- Bellatrix Exploration Ltd$1.42+0.06(+4.41%)
- Boyd Group Income Fund$62.05-1.00(-1.59%)
- Constellation Software Inc$480.24+5.24(+1.10%)
- Updated February 12 3:52 PM EST. Delayed by at least 15 minutes.