What are we looking at?
Canadian financial stocks with long-term upside potential.
The screen
We limited our pool to the 10 financial stocks in the S&P/TSX 60 Index.
To find the most promising, we looked at each stock's 40-week moving average (40wMA). This is the average closing price for the stock over a period of 40 weeks. Charting the moving average week by week gives us a sense of investor's behaviour: Are they growing more (or less) enthusiastic about the company's outlook and are they more (or less) likely to purchase the stock. We selected only those stocks that are above their rising 40wMA.
The basic reason for choosing this indicator is stocks tend to stay relatively close to their 40wMA. When stocks rise far above this average, investors often use this as an opportunity for profit taking, which then leads to a price correction toward the 40wMA. Sometimes, however, the demand for a stock could be so extensive that the price does not pull back to the average, but stays within a horizontal price range and, over time, the average catches up to the price.
More about Phases & Cycles
Phases & Cycles Inc. has been providing independent research for more than 24 years, using behaviour analysis. It publishes investment ideas for both the Canadian and U.S. equity markets. Its research reaches more than 1,000 users across North America and Europe.
What did we find?
Nine out of the 10 stocks in our survey are in a long-term up-trend and trading above their rising 40wMA. The table includes the percentage difference between each stock's closing price and 40wMA. It shows that National Bank is closest to its 40wMA. Manulife Financial, which had already pulled back to its 40wMA in May, appears the most ready to resume its up-trend. Both Manulife and National Bank are at an ideal point for accumulation as long as they remain above their 40wMAs.
The others are somewhat extended and could either pull back or trade in a horizontal range for a period of time until their respective 40wMA gets closer to the price, but they should also be considered for later accumulation.
The one stock that did not meet the criteria above is Power Corp. This stock is currently trading below its 40wMA.
In the adjoining table we summarize our findings. For a more detailed list covering all financial stocks listed on the S&P/TSX composite please go to www.phases-cycles.com and select "trial subscription."
Readers are advised to do further research before investing in the companies shown here.
The authors may hold shares in companies profiled.
S&P/TSX 60 financial stocks with long-term upside
| Company | Ticker | Recent close $ | 40wMA | % to avg. |
|---|---|---|---|---|
| Bank of Montreal | BMO-T | 79.48 | 73.00 | -8% |
| Bank of Nova Scotia | BNS-T | 71.89 | 65.00 | -10% |
| Brookfield Asset Mgt. | BAM.A-T | 46.85 | 43.50 | -7% |
| CIBC | CM-T | 97.65 | 92.00 | -6% |
| Manulife Financial | MFC-T | 21.64 | 20.50 | -5% |
| National Bank of Canada | NA-T | 45.93 | 44.50 | -3% |
| Royal Bank of Canada | RY-T | 77.83 | 72.00 | -7% |
| Sun Life Financial | SLF-T | 39.70 | 37.00 | -7% |
| Toronto-Dominion Bank | TD-T | 54.99 | 50.50 | -8% |