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The Canadian stock market fell into a rut after hitting a high in early 2022 as interest rates shot skyward. While Canadian value stocks also took a drubbing, some of them are approaching their old highs – or exceeding them – based on the experience of three variants of the Screaming Value portfolio.

The portfolio uses the EV-to-EBIT ratio as its measure of value, which can be thought of as a complicated version of the more familiar price-to-earnings ratio (P/E). In this case, EV is a company’s enterprise value, which is the sum of its market value and net debt. EBIT is a company’s earnings before interest and taxes over the past four quarters.

The Screaming Value portfolio starts with the largest 300 stocks on the Toronto Stock Exchange by market capitalization and picks the 10 with the lowest EV/EBITs. That is, it seeks out companies with lots of EBIT for a low debt-adjusted price. The portfolio is rebalanced each month and an equal amount of money is invested in each stock. (The returns herein are based on monthly data from Bloomberg. They include dividend reinvestment, but not inflation, taxes or trading costs.)

The Screaming Value portfolio enjoyed average annual returns of 14.5 per cent over the 25 years from the end of October, 1998, to the end of October, 2023. The Canadian stock market, as represented by the S&P/TSX Composite Index, gained an average of 7.3 per cent annually over the same period.

The accompanying graph illustrates how both the portfolio and market index fared over the 25-year period. It also includes lines that track 20-stock and 30-stock variants of the portfolio. (The 20-stock version picks the 20 stocks with the lowest EV/EBITs from the 300 largest on the TSX. The other opts for the lowest 30 instead.)

You’ll notice that the returns of the 10-stock and 20-stock portfolios follow each other fairly closely with each one taking the lead at different times. On the other hand, the 30-stock portfolio lagged the other two while still beating the market index handily.

More precisely, the 20-stock portfolio gained an average of 15.1 per cent annually over the 25-year period while the 30-stock portfolio gained an average of 12.1 per cent annually.

The portfolios focus on stocks with very low EV/EBITs, but the ratios climb as the number of stocks they hold grows. Currently, the 10-stock portfolio holds stocks with EV/EBITs of 3.6 and below. The 20-stock portfolio admits stocks with ratios of less than 5.2 while the 30-stock portfolio contains stocks with ratios under 6.1.

To put that into context, 231 stocks of the largest 300 stocks on the TSX have reported EV/EBIT ratios at the moment. Sort the 231 stocks by EV/EBIT and the one in the middle (the median) has a ratio of 15.3.

The second graph shows periods when the Screaming Value portfolio and market index declined from their prior highs. I didn’t include the 20- and 30- stock portfolios here in an effort to make the graph easier to read. But they generally offered slightly better protection on the downside than the 10-stock portfolio and declined at similar times.

The financial crisis of 2008-09 was quite painful because the market index gave up 43 per cent from its high to its low while the Screaming Value portfolio fared much worse. The 10-stock version lost 71 per cent from top to bottom while the 20- and 30-stock portfolios fared a bit better with losses of 67 per cent and 63 per cent, respectively.

More recently, the portfolios slipped again starting in 2018 and bottomed out in March, 2023. Despite the pandemic, the market held up relatively well with a loss of 22 per cent, but the Screaming Value portfolio gave up 58 per cent from its high to low while the 20- and 30-stock portfolios lost 50 per cent and 54 per cent, respectively.

Overall, the 20-stock portfolio enjoyed better returns with less volatility than the 10-stock portfolio. As a result, I’ve included 20 stocks in this week’s table, which can be found here. But I’m not sure doubling the size of the portfolio is worth the extra complication on a more permanent basis. (If you’ve an opinion on the matter, say so in the comments.)

With a little luck, the Screaming Value portfolio will continue to surge higher after bouncing off last year’s lows. But, be warned, the ride will likely be a bumpy one over the long term.

Norman Rothery, PhD, CFA, is the founder of

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