What are we screening for?
Large-cap Canadian-listed companies with strong earnings.
The screen
This week, the U.S. Federal Reserve announced that higher interest rates are likely to remain in place for longer to bring inflation down to the Fed’s 2-per-cent target rate. In Canada, a similar story is emerging – August inflation nudged higher, to 4 per cent, driven by an increase in gasoline, food and shelter costs. Increased input costs, coupled with lower consumer demand, are also affecting the manufacturing sector, with the S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) falling to a seasonally adjusted level of 47.5 in September, the lowest since May, 2020 (levels below 50 indicate a contraction in the sector). This is also weighing negatively on equity prices, with the S&P/TSX Composite Index reaching a new year-to-date low on Oct. 2.
First we screen for Canadian-listed companies with a market capitalization of more than $1-billion.
Next, we screen for companies with high earnings quality. We use the Refinitiv StarMine Earnings Quality Model to screen for companies with an earnings quality score greater than 90, representing the top 10 per cent of companies. The model is a percentile ranking of stocks based on the sustainability of earnings, with 100 being the highest rank.
More about Refinitiv
Refinitiv, a London Stock Exchange Group business, is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.
Select Canadian-listed large-cap companies
What we found
The screen produced 10 companies across five sectors.
Docebo Inc., which scored 93, was one of five IT companies to make the screen. Docebo is a provider of learning management systems, with the end-to-end capabilities and functionality to train internal and external workforces. The company has been investing heavily in artificial intelligence over the past four years, and management believes this infrastructure will allow the company to create more personalized training. Docebo held its Inspire 2023 conference in September, where it highlighted several products coming to market, including an integration with Microsoft Teams. Management expects annual recurring revenue growth to remain above 20 per cent going into 2024, with potential upside coming from its government vertical.
Air Canada, with a top score of 100, was the sole industrial company to make the screen. Air Canada, one of the founding members of the Star Alliance, is the largest airline in Canada, operating domestic, transborder, and international flights. The company recently announced a firm order for 10 Boeing 787-10 Dreamliner aircraft to replace the outgoing Boeing 767. As part of this order, Air Canada is cancelling its order for two Boeing 777 freight planes, as it plans to focus on passenger operations, specifically on long-haul routes. For the week ended Sept. 17, global flight departures increased more than 11 per cent compared with the same week in 2022, with Canadian passenger counts rising more than 17 per cent, which should help the carrier deliver stronger earnings.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a senior customer learning manager at LSEG, covering cross-asset trading for the LSEG Academy.