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What are we looking for:

Canadian growth companies available at a reasonable price.

The screen

This week, I use Morningstar CPMS to look for Canadian companies for which analysts have projected upward growth in earnings for the coming and following fiscal years, but that are available at a reasonable price. Seasoned investors will recognize this quickly as a GARP (growth at a reasonable price) strategy. The strategy starts by taking the largest 250 Canadian companies (by market cap) and sorts them on the following factors:

  • Five-year earnings-per-share deviation (a stability metric measuring how consistent earnings have been over the past five years, lower figures preferred);
  • Three-month estimate revision (today’s median consensus estimate for EPS versus what it was three months ago, higher figures preferred);
  • Current and next-year projected growth rate of earnings (based on median consensus estimates from the street, higher figures preferred);
  • PEG ratios on growth rate and reinvestment rates (GARP measures comparing the forward P/E against the growth rate of earnings and reinvestment rate of the company, respectively).

To qualify, stocks must have met or beat the latest street expectation on earnings in the last reported quarter (not shown in table).

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. With more than 120 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.

What we found

I used Morningstar CPMS to back test this strategy from May, 1992, to May, 2019. During this process, a maximum of 20 stocks were purchased and equally weighted with no more than five for each economic sector. Once a month, stocks were sold if their rank fell below the top 50 per cent of the universe, if the company missed earnings expectations by more than 5 per cent, or if street estimates fell by more than 5 per cent over three months. 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 return of 16.2 per cent while the S&P/TSX Composite Total Return Index returned 8.5 per cent.

The stocks that qualify for purchase today are listed in the table. It is always recommended to speak to a financial adviser or investment professional before investing.

Select TSX-listed growth companies available at a reasonable price

RankCompanySymbolMarket Cap. ($Mil)PEG Ratio (based on Growth Rate)PEG Ratio (Based on Re-investment Rate)Current Fiscal Year Projected Growth Rate (%)Next Fiscal Year Projected Growth Rate (%)3M EPS Median Estimate Revision (%)5Y EPS DeviationRecent Close ($)Div. Yield (%)Price Chg. from Month End, 12M Ago (%)
1BRP Inc.DOO-T2,
2CGI Inc., AGIB.A-T25,
3Air CanadaAC-T10,885.90.20.450.228.53.531.640.60.072.5
4Bausch Health Cos.BHC-T11,559.
5Toronto-Dominion BankTD-T140,954.
6Northland Power Inc.NPI-T4,621.80.21.362.723.35.822.225.794.78.5
7Superior Plus Corp.SPB-T2,329.30.210.8105.519.520.621.713.325.44.0
8Centerra Gold Inc.CG-T2,764.40.81.815.634.517.037.09.450.059.9
9Enghouse Systems Ltd.ENGH-T1,907.81.21.720.418.
10Element Fleet Mgmt.EFN-T4,
11Empire Company Ltd., AEMP.A-T5,609.30.31.445.76.02.720.932.31.520.4
12Westshore TerminalsWTE-T1,480.
13North West Company Inc.NWC-T1,457.01.12.514.

Morningstar Canada

Ian Tam, CFA, is a relationship manager for CPMS at Morningstar Research Inc.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

SymbolName% changeLast
Brp Inc
Air Canada
Bausch Health Companies Inc
Toronto-Dominion Bank
Northland Power Inc
Superior Plus Corp
Centerra Gold Inc
Enghouse Systems Ltd
Element Fleet Management Corp
Westshore Terminals Investment Corp
The North West Company Inc

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