Eight telecom, utilities and pipeline large caps for a defensive approach

What are we looking for?

Concerns in the Middle East and China have hammered investor optimism and many market watchers are now taking a cautious outlook for 2016. With this in mind, adopting a more defensive position seems prudent.

The screen

We will be using Recognia Strategy Builder to search for large cap Canadian stocks (market cap more than $5-billion) in the telecom, utilities and pipeline industries. These three industries are often thought of as defensive and should fare better than the overall market in the event of a market downturn.

To select companies that are currently well-valued we will screen for stocks with a forward price-to-earnings ratio of 25 or less. Forward P/E uses analyst estimates for company earnings in the coming year. To further refine our list, we will apply a second filter to look for price-to-book ratios of less than 5.0.

Finally, to select stocks with lower-than-average correlation to the overall market, we will filter using beta. We will select stocks with beta of less than one and more than minus one. Beta measures the price correlation of a security compared with the entire market. Stocks with beta of more than 1.0 are more volatile than the market but move in the same direction. Stocks with beta less than minus 1.0 are more volatile but move in the opposite direction to the overall market.

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?

Telecom giant BCE Inc. is the largest company on our list with a market cap of $46-billion. With low forward P/E and extremely low volatility, this stock is poised to weather any market downtrend.

TransCanada Corp. is one of Canada's largest pipeline companies. The company's stock price has declined approximately 15 per cent in the past 12 months, due mainly to the falling price of crude oil. With crude now trading at 11-year lows, the bottom may be in and TransCanada may be poised to appreciate in the coming months.

Newfoundland-based Fortis Inc. has electric utility operations in Canada, the United States, Central America and the Caribbean. The company is attractive with a price-to-book ratio of just 1.5 and volatility equal to about half that of the broader market.

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.