What are we looking for?
Winners to sell.
Amid a stock market rally of historic proportions, the average investor portfolio is bound to get out of whack.
As the slice of one's wealth dedicated to equities grows, portfolio allocations can drift out of alignment. The odd rebalancing is required to restore the rightful proportions. And since the S&P/TSX composite index is up by 15 per cent so far this year, there are likely many Canadian investors overdue for a portfolio checkup.
In a stock bull market, rebalancing usually requires trimming back on stock holdings to avoid becoming overexposed to equities. It's a process that involves selling one's winners, which is one of the reasons investment professionals say they have such a hard time trying to convince investors to commit to rebalancing.
So we went looking for the year's hottest Canadian stocks – those that might be good candidates for profit-taking.
How did we do it?
Given the prevalence of large-cap domestic stocks within the average Canadian portfolio, we used the S&P/TSX 60 index as a starting point.
From there, we screened for the stocks that have risen in value by at least 15 per cent this year. These stocks are prime culprits in the distortion of many a Canadian portfolio this year.
We also displayed the price-to-earnings ratio to try to help identify overpriced stocks. And finally, we've shown the relative strength index, a technical momentum indicator that is considered to signal overbought conditions when it hits 70, and of oversold conditions at 30 or below.
What did we find?
There are 25 Canadian stocks in the index that have met the 15-per-cent threshold in year-to-date gains.
The rebound in resource markets this year is reflected in the list, which is most heavily weighted in energy and materials stocks. The Canadian financial sector, which has built on an impressive run this year, has also made a good showing on this screen.
Then there's Tim Hortons Inc., which many Canadian investors will likely consider trimming after a 24-per-cent spike by early afternoon Monday on merger talks with Burger King. (The stock closed at $82.03, up $13.25, or 19.3 per cent.)
As always, investors should conduct their own research before making any investment decisions.