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What are we looking for?

Value and growth from Canadian large-caps.

The screen

Following the relative strength seen in the markets in the first quarter of 2017, North American equities have checked back somewhat, putting up mixed returns so far in April.

In Canada, five of the 11 sectors have declined this month, led lower by health care (down 6.9 per cent), financials (2 per cent) and information technology (1.1 per cent). South of the border, eight of 11 sectors are in negative territory so far in April, the worst performers coming from financials (declining 3.5 per cent), materials (2.1 per cent) and IT (1.9 per cent).

In the midst of growing uncertainty, investors may be looking to turn their attention to companies of higher quality and lower volatility. In order to identify larger-cap Canadian companies that offer both value and growth characteristics but may also benefit if investors become more cautious, my colleague Lawrence Ullman and I used Morningstar CPMS to find the top 15 companies above $5-billion in market cap with the best mix of:

  • Return on equity;
  • Forward price-to-earnings ratio;
  • Low five-year price beta (a measure of relative volatility where values less than one suggest less volatility than the market and higher than one suggest more volatility);
  • Three-month consensus EPS estimate revision (cannot be worse than minus 5 per cent).

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

Using CPMS we performed a back-test starting March 31, 2007, reselecting an equally weighted portfolio of the top 15 qualifying stocks every six months.

Over the entire period, this strategy would have generated an annualized total return of 9.8 per cent compared with 4.7 per cent for the S&P/TSX composite total return index.

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.

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Canadian large-caps with value, growth

RankCompanyTickerMkt Cap ($Bil)ROE (%)P/E5Y Price Beta3M EPS Revision (%)Div. Yield (%)
1Quebecor Inc.QBR.B-T5.077.915.
2Dollarama Inc.DOL-T13.4203.327.3-
3Aliment'n Couche-TardATD.B-T34.521.716.9-0.67-4.30.6
4Constellation SoftwareCSU-T13.4106.121.60.53-0.60.9
5CI Financial Corp.CIX-T7.029.512.40.810.55.2
6Magna Int'l Inc. MG-T20.
7Tourmaline Oil Corp.TOU-T7.70.617.21.0328.80.0
9Rogers CommunicationsRCI.B-T31.126.418.90.600.63.2
10CP Railway CP-T29.331.017.51.19-0.21.0
11Open Text Corp.OTEX-T11.717.713.20.47-0.21.4
12CN RailwayCNR-T74.023.819.30.691.81.7
13Fortis Inc.FTS-T18.47.817.
14Cdn Utilities Ltd.CU-T10.512.917.20.520.93.7
15Cdn Tire Corp.CTC.A-T11.413.416.20.731.31.6

Source: Morningstar CPMS