Peter Ashton is vice-president of client services at Recognia Inc.
What are we looking for?
With Canadian stock markets at or near all-time highs, are there still bargains to be found? We are looking to find large-cap stocks at a good price using value investing criteria.
The screen
We will be using Recognia Strategy Builder to create a strategy to identify the best matching companies in the Canadian market using value investing criteria. Strategy Builder is available through leading retail brokers in Canada and around the globe.
We begin by setting a minimum market capitalization threshold of $500-million. We wish to focus on large-cap names in the market due to the greater stability and safety that they offer.
Second, we will employ four value investing criteria to identify stocks that would be of interest to bargain hunting investors. Specifically, we will look for companies with price-to-earnings ratios of 20 or less, earnings yields (earnings per share divided by share price) of 5 per cent or more, debt to equity of 1.0 or less and a dividend yield of more than 2 per cent.
Finally, to look for stocks with growing investor interest, we will employ a trading criterion: 10 day versus 90 day average volume. We wish to find companies whose 10 day average volume is 110 per cent or more of the average volume over the past 90 days.
More about Recognia
Recognia is a global leader in actionable technical and quantitative analysis. Accessible by more than 20 million traders and investors globally, Recognia covers 85 exchanges worldwide, and analyzes 65,000 instruments daily including stocks, indexes, ETFs, foreign exchange currencies and futures.
What did we find?
Canada Bread Co. Ltd. is a strong dividend payer with a 4.2-per-cent yield. It has low debt and has shown significantly increased volume recently. In February, it was announced the company would be purchased from Maple Leaf Foods by Mexico's Grupo Bimbo.
At $54-billion, Suncor Energy Inc. has the highest market cap in our screen, provides a 2.3 per cent dividend yield and has a healthy 7 per cent earnings yield.
Power Financial Corp. is a diversified management and holding company with ownership in Great-West Life and IGM Financial. This is the third-largest company in our screen with a market cap approaching $25-billion.
Historical performance
Recognia Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked over a five-year historical period. Using a three month buy-and-hold strategy, the screen described had a 16.1-per-cent annualized return compared to 10.2 per cent for the S&P/TSX composite index and 9 per cent for the S&P/TSX 60.
The investment ideas presented here are for information only. Investors should conduct further research before investing.