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What are we looking for?

Profitable North American financial companies with reasonable valuations.

The screen

Two months into the new year, surging markets show no real sign of slowing down and investors are appearing to maintain their appetite for riskier securities.

Over the past 12 months, the S&P/TSX composite total return index and the S&P 500 total return index have posted gains of 23.7 per cent and 25.0 per cent, respectively.

The financials sector has led the charge with total returns of 33.3 per cent for the S&P/TSX capped financials index and 46.4 per cent for the S&P 500 financials index.

My colleague Lawrence Ullman and I turned to Bloomberg in order to search for mid- and large-cap financial companies that offer reasonable value and high profitability.

We ranked financials from the S&P/TSX composite, S&P 500 and S&P 400 with the best mix of:

  • Price to book;
  • Forward price to earnings;
  • Return on equity;
  • Three-month consensus earnings estimate revision no worse than minus 5 per cent;
  • Earnings variability (measured as the standard deviation of earnings per share over the past five years divided by the median value of EPS).

More about the Ullman Group

The Ullman Group is an independent provider of strategic private capital management services to high-net-worth individuals, corporations, endowments, charities and foundations.

What we found

We used Bloomberg to perform a back-test starting Feb. 28, 2002, selecting an equally weighted portfolio of the best 15 companies. The portfolio would be reselected and rebalanced quarterly.

Over the 15-year period, this strategy would have generated an annualized total return – in Canadian dollars – of 8.6 per cent compared with 10.4 per cent for the S&P/TSX capped financials index and 2.1 per cent for the S&P 500 financials index.

Over the past 12 months, the strategy would have gained 46.0 per cent compared with 34.2 per cent for the S&P/TSX capped financials index and 41.8 per cent for the S&P 500 financials index. (All returns were measured in Canadian dollars.)

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. Investors should contact a professional or do their own research before investing in any of the stocks shown here.

Craig McGee, CFA, is a portfolio manager and Lawrence Ullman, MBA, is a director, wealth management and portfolio manager with The Ullman Group at Richardson GMP in Toronto.

Richardson GMP Ltd. is a member of Canadian Investor Protection Fund. Richardson is a trademark of James Richardson & Sons Ltd. GMP is a registered trademark of GMP Securities LP. Both used under licence by Richardson GMP Ltd.

North American financial stocks worth a look

RankCompanyTickerMarket Cap ($Bil)*P/BP/EROE (%)3M EPS Revision (%)EPS VariabilityDividend Yield (%)
1Home Capital Group Inc.HCG-T1.71.06.416.
2Genworth MI Canada Inc.MIC-T3.51.09.311.
3National Bank of CanadaNA-T19.62.010.915.
4Bank of MontrealBMO-T66.11.712.513.
6IGM Financial Inc.IGM-T9.92.112.316.
7Laurentian Bank of CanadaLB-T2.01.29.911.6-
8Everest Re Group Ltd.RE-N9.81.212.512.54.10.312.1
9Goldman Sachs Group Inc.GS-N105.71.313.
10State Street Corp.STT-N31.21.714.
11Bank of Nova ScotiaBNS-T95.21.812.
12JPMorgan Chase & Co.JPM-N334.31.514.
13Synchrony FinancialSYF-N29.
14Industrial Alliance IAG-T6.01.411.413.21.50.322.5
15Wells Fargo & Co.WFC-N300.01.714.