Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }
Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you manage your health, your finances and your family life as Canada reopens.
Visit the hub

What are we looking for?

Canadian value stocks well positioned for a market upturn.

The screen

With all the market volatility that has followed the COVID-19 pandemic, most investors are focused on how best to position their portfolio to withstand those fluctuations. But how well is your portfolio positioned to recoup its losses once the market itself recovers?

Historically, we’ve seen investing styles that tend to be hit harder in down markets recover more quickly. That’s not always the case, of course, but a good rule of thumb. One of the styles that gets hit the hardest in downturns is value – portfolios that hold stocks that currently trade beneath their “intrinsic value,” or what the shares are deemed to be really worth. These stocks tend to be some of the best performers after a down period.

Story continues below advertisement

Today, I’m showcasing a model that searches for value companies within the CPMS Canadian universe, which currently holds 694 names. The strategy ranks stocks based on:

  • Price-to-trailing earnings (measured as the company’s most recent share price divided by the previous four quarters’ earnings per share, low values preferred);
  • Price-to-forward earnings (most recent share price divided by the current year EPS median estimate, low values preferred);
  • Price-to-book-value (most recent share price dividend by the book value per share; low values preferred);
  • Cash flow to debt (a profitability ratio, higher values preferred).

In order to qualify for the value model, the stocks must have:

  • A trailing and forward P/E in the bottom half of all Canadian stocks – that value today is 13.2 times and 12.8 times, respectively, or below;
  • A market capitalization in the top half of all Canadian stocks – that value today is $269.2-million or higher;
  • A payout ratio (calculated as dividends per share divided by EPS) less than 80 per cent to ensure earnings were not all being paid out as dividends.

More about Morningstar

Morningstar Research Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.

What we found

I used Morningstar CPMS to back-test this strategy from December, 1991, to March, 2020. During this process, a maximum of 15 stocks were purchased. Stocks were sold if the company’s payout ratio rose above 100 per cent. When sold, the positions were replaced with the highest-ranked stock not already owned in the portfolio.

Over this period, the strategy produced an annualized total return of 10.8 per cent while the S&P/TSX Composite Index returned 7.4 per cent on the same basis. It’s also worth noting that after the 2008 credit crisis, this model enjoyed a total return of 57.7 per cent in 2009 compared with the benchmark, which advanced 35.1 per cent.

Note that only 14 stocks qualify for purchase into the strategy today and are listed in the accompanying table. As always, investors are encouraged to conduct their own independent research before purchasing any of the investments listed below.

Select TSX-listed value stocks

RankCompanyTickerMkt. Cap. ($ Mil.)Trailing P/EForward P/EP/B ValuePayout RatioCF/DebtDiv. Yld. (%)12M Price Chg. (%)Recent Price ($)
1E-L Financial Corp.ELF-T2,600.63.85.20.44.01.00.8-19.6647.01
2Centerra Gold Inc.CG-T2,722.510.86.80.911.74.61.735.99.27
3Semafo Inc.SMF-T1,110.412.78.61.0n/a16.80.0-6.73.32
4Bank of Nova ScotiaBNS-T69,561.17.68.31.151.51.76.3-22.257.40
5Transcontinental Inc.TCL-A-T1,096.55.15.50.739.20.37.1-21.712.60
6Canaccord GenuityCF-T502.16.25.90.825.00.64.3-18.04.68
7Toronto-Dominion BankTD-T109,206.78.99.51.348.81.75.2-21.260.23
8Royal Bank of CanadaRY-T125,660.89.49.61.647.01.84.9-17.388.25
9Great-West Lifeco Inc.GWO-T21,883.88.07.61.155.21.07.4-29.923.60
10Westshore TerminalsWTE-T947.46.97.81.434.40.64.4-31.314.45
11Clairvest Group Inc.CVG-T691.75.67.60.81.70.00.2-4.745.50
12Canacol Energy LtdCNE-T675.19.64.72.026.60.45.6-6.83.73
13Leon's Furniture Ltd.LNF-T1,095.410.611.41.253.60.54.7-6.713.55
14Aecon Group Inc.ARE-T822.811.311.51.053.80.34.7-28.813.63

Source: Morningstar CPMS

Emily Halverson-Duncan, CFA, is a director, CPMS sales at Morningstar Research Inc.

Story continues below advertisement

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies