What are we looking for?
Canadian banks and financial stocks poised to move higher based on strong quarterly price performance, dividend yield and earnings growth projections.
Canadian banks and financial stocks had a difficult time in the past 12 months. Anticipation of imminent interest-rate hikes held down their share prices in 2015 while fears of a global recession knocked them to 52-week lows in February of this year. With recession fears left behind and a more dovish tone being set by the U.S. Federal Reserve, Canadian financial stocks have rallied strongly over the past six weeks, regaining much of the ground lost in the past year.
The screen
We will be using Recognia Strategy Builder to search for Canadian bank and financial stocks that meet the following search criteria.
We begin by setting a minimum market-cap threshold of $10-billion. Next, we will filter based on 13-week price performance. We will include only stocks whose prices are up by 5 per cent or more in the past quarter. We also prefer companies with strong earnings growth and dividend yields. We will select only companies with analyst EPS growth estimates of 5 per cent or more this year compared to last year and dividend yields of 2.5 per cent or more.
Last, we use technical analysis to focus on stocks that show a bullish MACD, or moving-average convergence/divergence.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Bank of Nova Scotia ranks No. 1 on our list with a $75-billion market cap and 4.4-per-cent dividend yield. Since hitting a 52-week low on Jan. 20, Scotiabank has rallied more than 20 per cent. The stock is now up 15.7 per cent in the past quarter, due in part to first-quarter results released March 1 that beat analyst expectations for both revenue and earnings. The company also boosted its dividend by 2.8 per cent.
Canadian Imperial Bank of Commerce has the highest dividend yield on our list at 4.7 per cent. The stock price has been volatile in the last six months, achieving a 52-week high in October and a 52-week low in February. The stock price is currently up 9.3 per cent in the past quarter.
Power Corp. of Canada has the highest analyst EPS growth estimates on our list at 16 per cent. This perennial strong performer is currently up 7.1 per cent in the past 13 weeks.
Historical performance
Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 3.8-per-cent annualized return (excluding dividends) compared to minus 0.1 per cent for the S&P/TSX 60 index and minus 1.4 per cent for the TSX composite.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.