Ron Meisels is the Director of Research and Monica Rizk is the senior Technical Analyst for Phases & Cycles Inc. (www.phases-cycles.com). They may hold shares in companies profiled.
What are we looking at?
Stocks with a potential downside risk of 10 per cent or more.
The screen
Stocks tend to stay relatively close to their 40-week moving average. However, when they move significantly higher or lower (more than 10 per cent), they are likely to close this "gap" by going through a price correction to get closer to this average.
We limited our pool to the S&P/TSX 60 constituents and selected those that are 10 per cent over their rising 40-week moving average. These stocks are very likely to have a considerable correction before they resume their up-trend.
What did we find?
We found 15 stocks that meet these criteria. In the adjoining table we summarize our findings.
Valeant Pharmaceuticals International Inc. shows the largest gap, of 25 per cent. Shares of this large-cap growth stock have more than doubled over the past year.
Magna International Inc. has the next-largest gap, of 20 per cent. The auto-parts maker's shares traded at about $58 a year ago and closed Thursday at $104.80.
Cameco Corp.'s gap is next, at 19 per cent. The uranium producer's shares have dropped close to $18 over the past year and currently trade around $28.
Brookfield Asset Management Inc. has the smallest gap, of 10 per cent. This company operates in the renewable power sector, as well as in infrastructure, commercial real estate and private equity. Also at 10 per cent is Canadian National Railway Co., the country's largest rail operator. Its rival, Canadian Pacific Railway Ltd., has a 15 per cent gap.