What are we looking for?
Stocks that might appeal to Warren Buffett – or to anyone looking for a bargain.
How we did it
The Oracle of Omaha is known for preferring companies with high returns on equity (ROE). A strong ROE is a sign that companies are able to convert the money contributed by equity investors into profit – and that’s a fundamentally attractive characteristic for any business.
Mr. Buffett is also renowned for buying things on the cheap. One sign of a bargain stock is a low price-to-earnings (P/E) ratio.
We looked for stocks on the Toronto exchange with ROEs above 20 per cent along with a single-digit P/E. These stocks have a demonstrated ability to produce profits while also being considerably cheaper than the market norm.
To avoid microcap stocks that might involve too much risk for most investors, we insisted each stock had to have at least $200-million in market capitalization.
What we found
Twenty-one stocks met our criteria. Each deserves a further look, but remember that stocks are usually cheap for a reason.
In nearly every case, these companies come with a blemish, which can range from simple skepticism over their growth prospects to more complicated company-specific issues. Note, too, that many of these stocks have sustained losses so far this year, which means that momentum may not be in your favour.
One guide to what the market thinks of these firms is provided by analysts’ opinion. Our chart shows the consensus recommendation from analysts for each stock on a scale that ranges from 1 (sell) to 5 (buy).
Do your own research before buying any of these names. Some apparent bargains may be value traps that look cheap but really aren’t. Only a detailed look at each firm can reveal if it truly belongs in a Buffett-inspired portfolio.
Stocks with high returns on equity, low price-to-earnings ratios
|Morguard N. Amer. REIT||MRG.UN-T||76.1||1.6|
|Rio Alto Mining||RIO-T||38.8||7.0|
|Timmins Gold Corp.||TMM-T||33.3||8.3|
|Retrocom Mid-Mkt REIT||RMM-T||28.4||3.6|
Cap. ($ mil.)
|Morguard N. Amer. REIT||MRG.UN-T||76.1||1.6||5.0||326.4||11.15||1.8|
|Rio Alto Mining||RIO-T||38.8||7.0||4.2||506.6||2.88||-43.4|
|Timmins Gold Corp.||TMM-T||33.3||8.3||4.5||383.5||2.66||-11.0|
|Retrocom Mid-Mkt REIT||RMM-T||28.4||3.6||4.6||258.2||5.21||-4.1|
|Home Capital Group||HCG-T||24.8||8.0||4.5||1,833.60||53.00||-9.4|
|Allied Properties REIT||AP.UN-T||22.0||5.6||4.5||2,168.30||31.89||-1.7|
|Cdn. Apt. Prop. REIT||CAR.UN-T||21.1||5.0||4.5||2,427.90||23.76||-2.8|
|National Bank of Canada||NA-T||21.0||8.7||3.0||12,363.30||76.16||-0.3|
- Morguard North American Residential Real Estate Investment Trust$10.710.00(0.00%)
- Chorus Aviation Inc$5.150.00(0.00%)
- Mandalay Resources Corp$0.870.00(0.00%)
- Timmins Gold Corp$0.300.00(0.00%)
- InterRent Real Estate Investment Trust$6.590.00(0.00%)
- Bird Construction Inc$11.610.00(0.00%)
- Wajax Corp$14.700.00(0.00%)
- TransGlobe Energy Corp$1.660.00(0.00%)
- Senvest Capital Inc$125.000.00(0.00%)
- Home Capital Group Inc$25.360.00(0.00%)
- Imperial Oil Ltd$40.520.00(0.00%)
- Morguard Corp$127.720.00(0.00%)
- Allied Properties Real Estate Investment Trust$30.490.00(0.00%)
- Agrium Inc$114.160.00(0.00%)
- Canadian Imperial Bank of Commerce$83.330.00(0.00%)
- Canadian Apartment Properties Real Estate Investment Trust$28.490.00(0.00%)
- National Bank of Canada$35.950.00(0.00%)
- Updated February 10 3:53 PM EST. Delayed by at least 15 minutes.