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NUMBER CRUNCHER

Cheap stocks for the cautious investor Add to ...

Kelly Brown is an investment analyst at Longview Asset Management Ltd. in Toronto.

What are we looking for?

Companies in Canada available at a low multiple of price-to-trailing-earnings (P/E).

Independent studies have demonstrated that selecting companies based on a value metric such as a low P/E will result in a portfolio that is likely to outperform the market averages over the next 12 months.

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A low P/E can sometimes signify slow earnings growth or a balance sheet with too much debt – so we also filter out companies with these characteristics.

The screen

Before ranking companies by lowest P/E, my colleague Alvin Lau and I used the S&P Capital IQ Screener to exclude companies with:

- compound earnings growth of less than 5 per cent per annum for the last five years;

- a balance sheet with greater than 30 per cent debt to total capital;

- a market capitalization lower than $100-million.

More about S&P Capital IQ

S&P Capital IQ offers a comprehensive set of tools for fundamental analysis of global securities as well as idea generation and work flow management. Its Web- and Excel-based platform provides access to both real-time and historical information on companies, markets, transactions and people around the world.

What did we find?

Successful investors use a variety of tools to identify companies that are high quality and trade at attractive prices. This particular screen produced 40 results, from which we selected the top quartile based on a low P/E ratio. All companies in this quartile have a P/E of less than 13. The average five-year earnings-per-share (EPS) growth rate is 14.9 per cent per annum. The average debt-to-total capital is 16.1 per cent.

Of course, none of these companies is guaranteed to outperform, but screens such as this can be a useful tool for improving your chances of beating the relevant index. Investors should perform additional research before making an investment.

Follow us on Twitter: @GlobeInvestor

 

TSX-listed stocks with low price-earnings ratios

Company Ticker Recent
Price $
Market Cap
($-mil)
First Quantum Minerals Ltd. FM-T 17.03 8,112
Major Drilling Group Int'l Inc. MDI-T 7.53 596
Imperial Oil Ltd. IMO-T 39.52 33,497
Total Energy Services Inc. TOT-T 13.75 423
Bird Construction Inc. BDT-T 13 553
Canadian Oil Sands Ltd. COS-T 19.49 9,444
Magna International Inc. MG-T 59.03 13,823
Pacific Rubiales Energy Corp. PRE-T 20.2 6,513
Empire Company Ltd. EMP.A-T 66.21 4,499
Dorel Industries Inc. DII.B-T 42.8 1,362

Source: Longview Asset Management, S&P Capital IQ

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