What are we looking for?
Growth and value from large-cap Canadian companies.
The screen
Investors looking for value within Canada's small-cap space have been rewarded so far this year. Year-to-date, the S&P/TSX small-cap total return index is up 13.5 per cent compared with 5.5 per cent for the large-cap S&P/TSX 60 total return index. Looking back over the past two years, however, gives us a different picture: The TSX 60 has returned a modest 2.3 per cent over that period, while its small-cap counterpart has lost 13.5 per cent.
In order to identify larger-cap Canadian companies that offer both value and growth characteristics, but may also benefit if investors become more cautious, my colleague Lawrence Ullman and I used Morningstar CPMS to find the top 15 companies above $5-billion in market cap with the best mix of:
- return on equity;
- forward price to earnings ratio;
- low five-year price beta (a beta of less than one would indicate the stock is less volatile than the market in general);
- three-month consensus EPS estimate revision (cannot be worse than minus 5 per cent).
Dividend yield for each stock is also shown for informational purposes.
More about the Ullman Group
The Ullman Group is an independent provider of strategic private capital management services to high-net-worth individuals, corporations, endowments, charities and foundations.
What we found
Using CPMS we performed a back-test starting March 31, 2006, reselecting an equally weighted portfolio of the top 15 qualifying stocks every six months.
Over the entire period, this strategy would have generated an annualized total return of 10.4 per cent compared with 4.1 per cent for the S&P/TSX composite total return index.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. Investors should contact a professional or do their own research before investing in any of the stocks shown here.
Craig McGee, CFA, is a portfolio manager and Lawrence Ullman, MBA, is a director, wealth management and portfolio manager with the Ullman Group at Richardson GMP in Toronto.
Richardson GMP Ltd. is a member of Canadian Investor Protection Fund. Richardson is a trademark of James Richardson & Sons Ltd. GMP is a registered trademark of GMP Securities LP. Both used under licence by Richardson GMP Ltd.