What are we looking for?
With Christmas shopping season getting started, today, we are looking for the 15 highest-ranked consumer stocks.
Rankings are determined by the INK Edge V.I.P. criteria (valuations, insider commitment and price momentum). This is the same approach we apply across the broad market to determine membership for the INK Canadian Insider Index, which is used by the Horizons Canadian Insider Index ETF (HII-T).
The screen
Our universe includes some 800 TSX-listed stocks that meet minimum size and liquidity requirements. To make the grade in this screen, a stock must trade over $3 and have a market cap of at least $250-million.
We begin by determining a stock's rank in each V.I.P. category based on equally weighted factors.
Valuations (past 12 months except dividend yield)
- price-to-earnings, price-to-book and price-to-sales ratios;
- enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization);
- price-to-cash flow or price-to-cash;
- shareholder yield (buybacks plus dividends).
Insider (officer and director) commitment
- recent net insider buying;
- personal holdings (excludes shares held for other investors);
- insider intensity, based on the number of insiders buying.
Price momentum
- based on three-, six- and 12-month returns.
Next, each V.I.P. category rank is equally weighted to determine a composite ranking.
In context
The percentile V.I.P. category and composite rankings are in relation to all other stocks in the market. Rankings are between 0 and 100, the higher the better.
A composite ranking over 90 goes into the top decile "sunny" outlook category. A composite ranking between 70 and 90 goes into the next two deciles, the "mostly sunny" category. INK sunny and mostly sunny outlook categories are not buy recommendations but are designed to identify groups of stocks that have the potential to outperform the market – so keep in mind that even if a particular stock has a bright outlook, it could still rain on your portfolio's parade. Diversification remains key.
What we found
Defensive names dominate, with nine stocks coming from the consumer non-cyclicals sector, including top-ranked food processor Lassonde Industries Inc. In terms of Canadian focused non-food retailers, only three show up: Indigo Books & Music Inc., Goeasy Ltd. and Canadian Tire Corp. Ltd. Shaw Communications Inc. also makes the list.
Ted Dixon, CFA, is CEO of INK Research, which provides research and alerts on insider trading reports in Canada and the United States. Please visit CanadianInsider.com to find out more about INK services and insider reporting in Canada. INK staff may also hold a position in profiled securities.