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What are we looking for?

Companies that survived the market crash of fall, 2008, and are prepared for another downturn.

The screen

In August, the S&P 500 hit a milestone that marked the longest bull equity run in history – one that began in 2009, after the market crash of fall, 2008. On hitting that milestone, investors started to wonder whether we had entered the ninth inning of the historic run, and it appears now they may have been right to wonder, and the game may now be ending. The S&P 500 is now flirting with correction territory, down 9.8 per cent from its peak in September. The recent sell-off has erased all of the gains made so far this year. It’s probably overly pessimistic to say that this feels like 2008, but just the same, investors may want to look to companies that were able to weather the storm last time around.

First, we look for Canadian companies whose shares were listed in the summer of 2008, survived the crash, and have posted a total return of 100 per cent or more since. (A total return of 100 per cent isn’t particularly impressive under normal circumstances, but is commendable considering the actual environment of the past decade).

To limit downside risk, we require a market cap of at least $2-billion. We also require a net-debt-to-equity ratio of no more than 0.5. If economic growth slows, shares of companies with higher relative levels of debt will struggle disproportionately as sales growth slows and interest and principal payment obligations are more difficult to meet. (A negative ratio means companies have negative net debt, that is, more in cash equivalents and short-term investments than debt.)

Finally, we look at earnings quality. As Warren Buffett famously said, “Only when the tide goes out do you discover who’s been swimming naked." Companies that exhibit accounting practices such as: not writing down rising receivables and inventories; recognizing income without underlying cash flows; and high levels of “exclusions” (expenses a company doesn’t include in its reported earnings because it designates them as “special” or “non-core to operations”) will eventually have to lower income in future periods to bring these things back to reality. An economic slowdown and market correction will only accelerate this process, so we look only for companies in the top-10 percentile (90 and above) in terms of their StarMine Earnings Quality Rank – a measure of how sustainable reported earnings are.

More about Refinitiv

Refinitiv (, formerly the financial and risk business of Thomson Reuters, is one of the world’s largest providers of financial markets data and infrastructure, serving more than 40,000 institutions in over 190 countries.

What we found

The screen yielded five companies. Not surprisingly, two (Empire Co. Ltd. and Metro Inc.) are in the consumer non-cyclical sector, which, as its name suggests, tends to outperform in down markets. What is surprising is that two of the others (Constellation Software Inc. and Enghouse Systems Ltd.) are from the more growth-oriented tech sector.

Empire Co. operates grocery stores including, among others, the Sobeys, IGA and Foodland chains – very traditional businesses. However, Empire recently made an agreement with Britain’s Ocado Solutions to transform the Canadian grocery model into a high-tech industry. Sobeys will use Ocado’s patented “hive” system – a grid of thousands of robots that work together to pick the groceries to fulfill customer orders. As bricks-and-mortar retailers in other industries have struggled with the proliferation of online retailers such as Inc., this move could put a moat around Empire’s grocery business as we move into a higher-tech future.

Hugh Smith, CFA, MBA, is an investment management specialist at Refinitiv.

Select companies with strongly sustainable earnings

Company Ticker Sector Market Cap ($Bil) Total Return from June, 2008 (%) Net Debt / Equity Earnings Quality Score
Constellation Software Inc. CSU-T Technology                                                            18.0                           3,667  -0.08 99
Metro Inc. MRU-T Consumer Non-Cyclicals                                                            11.0                              424  0.46 96
Empire Co. EMP-A-T Consumer Non-Cyclicals                                                               6.0                              107  0.26 96
Stella-Jones Inc. SJ-T Basic Materials                                                               3.0                              438  0.38 92
Enghouse Systems Ltd. ENGH-T Technology                                                               2.0                           1,233  -0.52 92

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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 13/06/24 4:00pm EDT.

SymbolName% changeLast
Empire Company Ltd
Metro Inc
Constellation Software Inc
Enghouse Systems Ltd

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