Skip to main content

Number Cruncher Outperforming 15-stock Canadian portfolio built on analysts’ recommendations

What are we looking for?

Canadian stocks that are viewed favourably by equities analysts.

The screen

A useful tool for investors to use when looking at potential companies to purchase is research produced by analysts. These reports contain their researched opinions as to what a stock is worth and where it currently sits relative to that worth. One of the most commonly recognized and easily understood outputs from analysts are the stock ratings of buy, sell and hold.

Today, I’m showcasing a strategy that looks across the CPMS Canadian universe for stocks that are viewed favourably by analysts. The CPMS Canadian universe currently contains 701 names.

Story continues below advertisement

In order for stocks to qualify, this strategy requires:

  • A median analyst recommendation greater than or equal to three. (Analysts can score companies on a scale of one to five, one being the least favourable and five being the most favourable, which is the definition used by Morningstar. A similar, well-known scale can also be referenced to aid with interpretation: five, strong buy; four, moderate buy; three, neutral or hold; two, moderate sell; and one, strong sell.)
  • A three-month change in median analyst recommendation greater than or equal to zero (measure of the change in analyst recommendation across the trailing three-month period; for example, if three months ago a stock was rated as a two and is now rated a four, the three-month change would be two);
  • A five-year beta relative to the index less than or equal to one (a measure of benchmark sensitivity; here we use the S&P/TSX Composite Index);
  • A three-month earnings-per-share estimate revision (measures the change in EPS estimates across the trailing three-month period) that is positive or unchanged;
  • A market capitalization greater than or equal to $100-million.

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 November, 1996, to June, 2019. During this process, a maximum of 15 stocks were purchased. Stocks were sold if their five-year beta rose higher than 1.2 or if their three-month change in median analyst recommendation dropped below zero. 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 19.1 per cent while the S&P/TSX Composite Total Return Index returned 7.1 per cent across the same period.

Downside deviation (measured as the variability of negative returns) was 7.8 per cent compared with 10.2 per cent for the S&P/TSX Total Return Index. One important thing to note is that the turnover on this model was quite high, at 181 per cent. What this means is that you could be replacing the 15 stocks in the portfolio almost twice each calendar year were you to follow this model exactly. This amount of trading may be too high for some investors to manage themselves, however those curious to learn more should speak with their financial adviser.

Stocks that qualify for purchase into the strategy today are listed in the accompanying table. As always, investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Fifteen stocks viewed favourably by equities analysts

RankCompanyTickerMkt. Cap. ($ Mil.)Median Analyst Recommendation3M Chg. in Median Analyst Recommendation5Y Beta3M EPS Estimate Revision (%)Div. Yld. (%)Recent Close ($)Trailing 12M Price Chg. (%)
1Aptose Biosciences APS-T204.35.00.50.430.60.03.84-3.3
2First Capital RealtyFCR-T4,771.55.00.50.617.43.921.787.4
3Quarterhill Inc.QTRH-T192.54.01.00.658.93.11.6215.7
4Cascades Inc.CAS-T1,128.44.01.00.212.01.312.05-3.4
5Chartwell Retirement CSH-UN3,288.04.00.50.635.03.915.420.7
6Kinaxis Inc.KXS-T2,107.54.50.50.95.90.080.58-8.2
7Enbridge Inc.ENB-T94,714.34.50.50.94.46.346.801.3
8Rogers CommunicationsRCI-B-T35,666.94.01.00.30.02.969.594.9
9Cott Corp. BCB-T2,182.85.00.00.814.32.016.05-22.7
10Summit Industrial REITSMU-UN-T1,540.43.50.50.414.04.213.0049.3
11Element Fleet Mgmt.EFN-T4,496.35.00.00.711.51.710.3465.2
12Premier Gold Mines PG-T477.75.00.00.98.60.02.27-7.7
13Richelieu Hardware Ltd.RCH-T1,453.25.00.00.66.41.025.51-9.4
14Northland Power Inc.NPI-T4,587.85.00.00.75.84.725.607.7
15Park Lawn Corp.PLC-T813.25.00.00.25.01.628.2616.1

Morningstar CPMS

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

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
Unchecking box will stop auto data updates
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 ...

Cannabis pro newsletter