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What are we looking for?

Headlines surrounding inflation fears, possible interest-rate hikes and a fourth wave of COVID-19 are making their way into the media, making some investors nervous about volatility and a correction. As a result, my colleague Allan Meyer and I thought we would take a closer look at the Canadian consumer staples sector using our investment philosophy focused on safety and value. This “steady eddy” sector is considered to be defensive should volatility appear.

The screen

We started with Canadian-listed consumer staples with a market capitalization of $1-billion or more. We sorted the list on this metric, from largest to smallest. It’s a safety factor: Larger companies tend to be more stable and liquid. Then we looked at yield, the annualized dividend divided by the recent share price. Dividends generally reflect safety and stability.

Beta tracks a stock’s volatility in relation to the general market. A lower number is better and implies less volatility or smaller stock price swings. Anything under one is less volatile than the market. Then we looked at debt-to-equity as our final safety factor. It is the debt outstanding divided by shareholders’ equity. A smaller number is preferred.

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Price-to-earnings is the share price divided by the projected earnings per share. It’s a valuation metric: The lower the number, the better the value. As value investors, Allan and I are always looking to get a deal. Earnings momentum is the change in annualized earnings over the past quarter. A positive number implies earnings are growing while the opposite is true for a negative number. Positive numbers over the long term could lead to share price and dividend increases, and vice versa for negative numbers.

We’ve calculated the average and median for all metrics to allow for better comparability and 52-week total return to track performance.

What we found

13 ‘steady eddy’ sectors that offer safety and value for jittery investors

CompanyTickerMkt. Cap. ($ Bil.)Div. Yld. (%)BetaDebt/Eqty. (%)P/EEarns. Mom. (%)52W Ttl. Rtn. (%)Recent Price ($)
Alim. Couche-Tard Inc.ATD-B-T54.20.70.978.817.50.18.950.29
Loblaw Cos. Ltd.L-T29.01.7-0.1151.115.713.823.884.40
George Weston Ltd.WN-T19.70.20.3267.216.012.330.6129.38
Metro Inc.MRU-T15.91.5-0.176.617.51.811.964.70
Saputo Inc.SAP-T14.91.90.663.820.60.612.036.00
Empire Co. Ltd.EMP-A-T11.01.50.3163.114.7-1.120.840.97
Premium Brands Hldgs.PBH-T5.62.00.984.426.16.237.8127.58
Primo Water Corp.PRMW-T3.31.41.4109.227.02.610.020.59
Maple Leaf FoodsMFI-T3.12.90.351.018.14.9-14.024.71
North West Co. Inc.NWC-T1.84.00.581.814.99.727.136.36
Jamieson WellnessJWEL-T1.41.40.459.525.32.6-8.134.97
SunOpta Inc.SOY-T1.4n/a2.220.9129.5-15.449.713.14
Lassonde IndustriesLAS-A-T1.22.0-0.129.112.7-2.97.1172.57
Average12.51.80.695.127.42.7
Median5.61.60.478.817.52.6

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

Maple Leaf Foods Inc. and Lassonde Industries Inc. offer a solid blend of safety and value. North West Co. Inc. is the highest yielding and looks interesting. Most names on the list have low (less than market) betas. Metro Inc., Loblaw Cos. Inc. and Lassonde actually provide investors with negative beta; this means these names could appreciate should the market sell off. Loblaw also has the highest earnings momentum while Lassonde boasts the best value. SunOpta Inc. has the least debt and best 52-week total return, but the worst earnings momentum and also the only name on the list that doesn’t pay a dividend.

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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