What we’re looking for
The best performing investing style of 2012.
To find what’s in style, we turned to S&P Capital IQ, which tracks eight strategies or “style indicators,” as it calls them. The winner so far this year is one based upon fundamental valuations, which has produced a 16.7 per cent return.
How it works
Jamie Hynes, sales director with S&P Capital IQ, screened the Capital IQ global database for Canadian stocks that ranked highest on six factors (three of which are shown here) that make up the Valuations Style Indicator:
-low share price to book value per share;
-low share price to free cash flow per share;
-low share price to forward earnings per share;
-low share price to earnings adjusted for estimated long-term earnings growth and dividend yield;
-high EBITDA (earnings before interest, taxes, depreciation and amortization) to enterprise value (a company’s market capitalization plus net debt);
-low share price to operating cash flow (relative to companies in same industry).
In the accompanying chart, a stock’s ranking on these factors is given in terms of percentiles of the S&P/TSX composite. A stock with a percentile ranking of 1 is in the top 1 per cent of the market for that criterion; one with a percentile ranking of 100 is in the bottom 1 per cent.
More about S&P Capital IQ
S&P Capital IQ offers a comprehensive set of tools for fundamental analysis of global securities, idea generation and workflow 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 we found
Many of the top 20 stocks in the valuations-based model have done poorly over the last year. This is typical of any value-based strategy – the stocks that are today’s biggest bargains tend to be ones that have tumbled out of favour and are therefore cheap.
To make sure you’re not buying a “value trap” that is cheap for a good reason, you should do your own research before buying any of the names listed here. You should also be prepared to be patient. While a value-based investing strategy has produced good results over time, no style is always in fashion.
S&P Capital IQ's Valuations Style Indicator
|Company||Ticker||Closing price $ (Nov. 6)||Mkt. cap. ($ mil.)|
|Dorel Industries Inc.||DII.B-T||37.67||1,188.20|
|Westjet Airlines Ltd.||WJA-T||17.96||2,402.50|
|Aecon Group Inc.||ARE-T||11.42||637.4|
|Pacific Rubiales Energy||PRE-T||23.42||6,921.50|
|Manulife Financial Corp.||MFC-T||12.52||22,802.20|
|Genworth MI Canada Inc.||MIC-T||21.06||2,078.50|
|Inmet Mining Corp.||IMN-T||56.76||3,937.20|
Unless indicated otherwise, all values are percentile rankings relative to the S&P/TSX composite index (1 is best; 100 is worst); Source: S&P Capital IQ
|Company||Ticker||Closing price $ (Nov. 6)||Mkt. cap. ($ mil.)||Price to book||Price to CF||Forward P/E||Div. yield %||% total rtn. (1 yr.)|
|Dorel Industries Inc.||DII.B-T||37.67||1,188.20||12||10||34||3.2||57|
|Westjet Airlines Ltd.||WJA-T||17.96||2,402.50||44||9||26||1.8||35.6|
|Aecon Group Inc.||ARE-T||11.42||637.4||28||18||12||2.5||28.2|
|Pacific Rubiales Energy||PRE-T||23.42||6,921.50||54||38||7||1.9||10.1|
|Manulife Financial Corp.||MFC-T||12.52||22,802.20||16||1||16||4.2||2.2|
|Genworth MI Canada Inc.||MIC-T||21.06||2,078.50||7||n/a||5||6.1||-3.9|
|Inmet Mining Corp.||IMN-T||56.76||3,937.20||22||17||15||0.4||-7.8|
|Sherritt Int'l Corp.||S-T||4.81||1,428.30||2||8||4||3.2||-14.3|
|Trinidad Drilling Ltd.||TDG-T||6.8||821.8||14||48||8||2.9||-14.9|
|Savanna Energy Services||SVY-T||6.9||591.3||5||42||10||5.2||-16.3|
|Nevsun Resources Ltd.||NSU-T||4.7||934.3||41||4||31||2.1||-19.7|
|Major Drilling Group Int'l||MDI-T||10.41||823.9||39||32||6||1.9||-24.2|
|Calfrac Well Services Ltd.||CFW-T||22.68||1,014.40||32||64||10||4.4||-26.7|
|Research In Motion Ltd.||RIM-T||8.97||4,631.80||2||1||98||0||-53.5|
|Alacer Gold Corp.||ASR-T||5.39||1,546.30||17||13||26||0||-56|