What are we looking for?
Canadian-listed consumer staples stocks that show strong institutional conviction.
Institutional investors (such as banks, pension funds, insurance companies, hedge funds and credit unions) are often referred to as “smart money” and seen as a point of validation for retail investors when buying a stock. In a recent survey from RBC Dominion Securities of 75 institutional investors, 60 per cent of respondents indicated they are bullish or very bullish on the outlook for equity markets, suggesting the current bull market could continue. Institutional investors increasing their ownership in a stock can be a favourable sign to investors, and today we search for companies in the consumer staples sector that could be attractive to institutional investors. A defensive sector, consumer staples stocks offer steady growth, lower volatility and solid dividends.
First, we screen for Canadian-listed companies with a market capitalization greater than $500-million.
Next, we look for companies with expected future increases in institutional ownership. We use the StarMine SmartHoldings model to screen for companies with a SmartHoldings score greater than 85. The SmartHoldings model is a percentile ranking of stocks based on company fundamentals such as the price-to-earnings and debt-to-equity ratios, with 100 representing the highest rank.
The model looks at the purchasing profile, investment style and fund mandate for all institutional investors, and compares these against the fundamental factors of every stock globally to determine the alignment between the stock and the fund. The result of this is a predictive model that accurately forecasts which stocks will see an increase in institutional ownership based on the collective demand relative to stocks globally.
More about Refinitiv
Refinitiv is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.
What we found
The screen, ranked by the StarMine SmartHoldings model, produced seven companies.
Dairy company Saputo Inc., which tied for first in SmartHoldings with grocer and retailer North West Co. Inc. with a score of 100, has 19.5 per cent of its outstanding shares owned by institutional investors. Saputo was the only company with a negative one-year total return, driven largely by the strong decrease in demand across their food service business. Despite this slowdown, Saputo was able to deliver a gross profit margin of 28.5 per cent for the quarter ended Sept. 30, a 1.5 per-cent decline compared with the same quarter in 2019. Management at Saputo have been focusing on cost reduction initiatives, as well as looking for ways to repurpose the company’s food service inventory to the retail segment to maintain its margins.
Rogers Sugar Inc., which ranked third in SmartHoldings with a score of 97, has 23.4 per cent of its outstanding shares owned by institutional investors. It operates as a refiner, processor, distributor and marketer of sugar products in Canada, with sugar-processing facilities in Montreal and Vancouver. The only name on our list with a market cap of less than $1-billion, the company has a 50 per cent market share in Canada in the sugar products market, and has been focusing its growth efforts on international markets including the United States and Mexico. Analysts covering the stock have recently increased their outlook for the company, with TD Securities upgrading its recommendation to buy, and a price target of $6.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a customer success leader, Refinitiv buy-side and commodities trading for the Americas.
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.