Skip to main content

What are we looking for?

Canadian stocks with strong value-investing characteristics despite the dramatic upward move in the past two months.

Canadian stocks sold off sharply in January and early February due to declining crude prices and fears of a slowdown in China. However, the market reversed sharply higher in mid-February and has now added 15 per cent from its February lows. Many stocks in the energy and materials sectors are now up 35 per cent or more this year. In light of these strong performances, is there still value to be found in the Canadian market?

The screen

We will be using Recognia Strategy Builder to identify well-valued companies using traditional value-investing criteria. We begin by setting a minimum market capitalization threshold of $2.5-billion. We wish to focus on large cap names in the market due to the greater stability and safety that they offer.

Next, 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 forward price-to-earnings ratios (P/E) of less than 20, a five-year historical annualized earnings-per-share growth rate of 8 per cent or more, debt-to-equity of 1.5 or less and a five-year historical annualized dividend growth rate of more than 5 per cent.

Finally, to look for stocks with building investor interest, we seek companies where the 10-day average volume is greater than the 90-day average volume.

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?

Consulting giant Stantec ranks No. 1 on our list. The company has a great track record of growing revenue and earnings, and has a very low debt-to-equity ratio of 0.28. Stantec also has seen above-average market interest lately with nearly double the number shares traded in the past 10 days as is typical over the past 90 days.

Agrium has the lowest forward P/E estimate on our list at just 11.3. Weak fertilizer demand has hammered the stock price over the past year, which is now sitting near a 52-week low. Value investors often search for unloved stock gems. Agrium is now looking attractive based on its low P/E ratio and its strong track record of dividend and EPS growth.

Alimentation Couche-Tard is the largest company on our list with a market cap in excess of $30-billion. The company recently struck a deal with Imperial Oil to acquire 297 of its gas stations in Ontario and Quebec. The company has a strong dividend growth rate and manageable debt levels.

Historical performance

Recognia Strategy Builder provides a back-testing 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 14-per-cent cumulative return compared with 1.8 per cent for the S&P/TSX 60 index.

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.

Canadian value stocks

RankCompanyTickerMarket Cap ($-bil)P/E (This Year's Estimate)EPS Growth (5-Year Historical) (%)Dividend Growth Rate 5 Year Average (%)Debt to Equity RatioVolume 10-Day vs. 90-DayDividend Yield (%)
1Stantec Inc.STN-T3.017.8156.2%23.7%0.281.901.3%
2Domtar Corp.UFS-T3.213.247.3%40.3%0.481.274.0%
3Agrium Inc.AGU-T15.011.322.0%125.8%0.891.034.3%
4Alimentation Couche-Tard Inc.ATD.B-T30.517.927.3%30.3%0.591.290.5%
5MacDonald Dettwiler and Assoc. Ltd.MDA-T3.214.672.7%11.0%0.891.531.7%
6Empire Co. Ltd.EMP.A-T5.712.827.0%7.9%0.521.181.9%
7CI Financial Corp.CIX-T7.713.712.2%11.1%0.301.064.7%
8Canadian National Railway Co.CNR-T61.417.814.7%18.3%0.701.091.7%
9Shaw Communications Inc.SJR.B-T11.413.810.3%5.9%1.061.205.0%

Source: Recognia Strategy Builder