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Number Cruncher

'Impatient' portfolio beats the market Add to ...

What are we looking for?

Yesterday we looked at how a portfolio of U.S. "impatient value" stocks has performed. These stocks exhibit characteristics of both value and momentum and are supposed to deliver gains sooner than traditional value stocks. Since we established our U.S. portfolio last August, it more than doubled the performance of the S&P 500.

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Today we'll see how a portfolio of Canadian "impatient value" stocks - which we created way back in August, 2008 - is doing. This was right before the markets went into a tailspin, so we're not getting our hopes up.

The Canadian portfolio

Because of the smaller universe of stocks in Canada, we loosened the rules slightly. To make it into our portfolio, which we created on Aug. 20, 2008, each stock had to be trading within 10 per cent of its 52-week high and have a PEG ratio of less than 2.

The PEG ratio is the forward price-to-earnings multiple divided by the projected growth rate in earnings. For example, a company with a forward P/E of 12 and a projected growth rate of 10 per cent would have a PEG ratio of 1.2. The lower the PEG, the cheaper the stock relative to its growth rate. We then "invested" $10,000 in each stock.

How have our stocks performed?

The surviving members of our portfolio are up 13.9 per cent, on average, since inception, excluding dividends. The return would have been even higher had we included four stocks that were originally in the portfolio but have since been taken over - namely Fording Canadian Coal Trust, Saxon Energy, CHC Helicopter and Progress Energy Trust

Even without those stocks, the 13.9-per-cent increase of our portfolio still handily beat the 4.5-per-cent increase of the S&P/TSX composite index over the same period. Granted, the impatient value screen is intended to find stocks that will deliver gains quickly, but it's reassuring to know that many of these stocks have held on to their winnings two-and-a-half years later.

 

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