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26 stocks that hit the sweet spot between growth and value

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What are we looking for?

Canadian stocks that will appeal to both momentum and value investors.

Momentum investing consists of buying stocks that are already rising in price. Value investing is about finding stocks at bargain prices. Both strategies can be good on their own but are even better together.

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By looking for both value and momentum attributes, an investor can avoid falling into "value trap" stocks that are cheap for a good reason or lack a catalyst to move them higher. You also sidestep momentum plays that are overpriced in relation to their fundamentals.

How we did it

James Telfser, portfolio manager at Caldwell Investment Management Ltd. in Toronto, is fond of his firm's trademarked strategy known as Momentum at a Reasonable Price, or MARP, which searches for stocks in the sweet spot of rising momentum and attractive valuation.

The Caldwell Canadian Value Momentum Fund uses a MARP strategy and since launching on Aug. 15, 2011, has produced a cumulative return of 17.9 per cent versus the S&P/TSX composite index total return of 5.85 per cent.

Today's screen is the first step in looking for stocks suitable for a MARP investor. Mr. Telfser began by focusing on TSX-listed stocks with market capitalizations greater than $200-million that have increased in price over the past one month and three months.

To make the grade, a stock had to have a return on equity greater than 15 per cent and a price-to-earning ratio (based on expectations for 2014) of 15 or less.

What we found

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The stocks that made the cut are a diverse group, ranging from T-shirt maker Gildan to cable-and-wireless giant Rogers Communications. Each of these stocks appears to be an interesting combination of growth and value – but, as always, you should do your own reconnaissance before investing in a name generated by a screen.

As Mr. Telfser notes, it was deeper research that allowed his firm to avoid Poseidon Concepts, a stock that ranked highly on these criteria a year ago but has since crashed.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More


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