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What are we looking for?

Canadian small-caps with growth and momentum.

The screen

As a follow-up to our article from two weeks ago where we highlighted smaller Canadian dividend-payers, we wanted to focus again on small-caps, but this time emphasize those with higher growth and momentum characteristics.

Small-caps have surged this year, outperforming their larger-cap counterparts. For example, the S&P/TSX composite total return index and Russell 2000 total return index have posted year-to-date returns of 37.5 per cent and 23.9 per cent, respectively.

In order to uncover smaller Canadian companies that may benefit further if a winter rally continues, my colleague Lawrence Ullman and I used Morningstar CPMS to find 20 Canadian firms with market capitalization under $1-billion and the best mix of:

  • Return on capital;
  • Expected earnings growth for the upcoming year;
  • Latest earnings surprise;
  • Three-month consensus earnings estimate revision;
  • Total return over the past three- and 12-month periods.

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 CPMS to perform a back-test starting Nov. 30, 2006, selecting an equally-weighted portfolio of the best 20 companies. At month-ends, stocks would have been replaced if they fell outside of the top 20 per cent of the universe.

Over the full period, this strategy would have generated an annualized total return of 19.1 per cent compared with 4.7 per cent for the S&P/TSX composite total return and only 1.9 per cent for the S&P/TSX small-cap index. Over the past 12 months, this small-cap growth strategy would have enjoyed a return of 35.4 per cent versus 15.4 per cent for the TSX composite and 31.2 per cent for the TSX small-cap 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.

Select Canadian small-cap stocks

RankCompanyTickerMarket Cap ($ Mil)ROC (%)Expected Growth (%)EPS Surprise (%)3M EPS Revision (%)3M Rtn (%)12M Rtn (%)
1Painted Pony PetroleumPPY-T989.10.7183.720.96.722.4183.9
2KP Tissue IncKPT-T146.480.86.668.733.618.042.8
3Polaris InfrastructurePIF-T228.03.0457.715.542.0-19.185.8
4North American EnergyNOA-T152.02.885.
5Cervus Equipment Corp.CVL-T259.911.726.655.913.342.726.2
6Wajax CorporationWJX-T512.48.051.776.9-3.577.157.1
7Ithaca Energy Inc.IAE-T601.
8Cargojet Inc.CJT-T512.811.056.310.911.612.390.2
9Extendicare Inc.EXE-T885.510.159.316.419.46.68.2
10Delphi Energy Corp.DEE-T216.
11Avigilon CorporationAVO-T538.013.218.465.25.742.0-9.9
12Clarke Inc.CKI-T137.212.12.870.
13Silvercorp Metals Inc.SVM-T600.112.413.316.90.0-14.1445.5
14Altius Minerals CorpALS-T569.41.966.
15Rocky Mountain DealersRME-T188.617.914.511.98.55.463.3
16CRH Medical Corp.CRH-T523.615.443.10.0-4.542.276.6
17IBI Group Inc.IBG-T188.423.7-30.820.8-4.0-0.7173.3
18Great Panther SilverGPR-T311.118.0-14.511.80.05.7167.1
19Ag Growth InternationalAFN-T818.110.837.70.07.925.873.5
20Spin Master Corp.TOY-T858.855.915.

Source: Morningstar CPMS