WHAT ARE WE LOOKING FOR?
A ranking of Canadian materials stocks that should do well in July.
REVIEW OF JUNE RECOMMENDATION
Yin Luo, quantitative strategist at Macquarie Securities, recommends a portfolio strategy each month for this column. In June, he ranked Canadian energy stocks. The 10 top-ranked stocks returned 5.5 per cent, while the bottom 10 fell 1.4 per cent. So, his strategy generated a spread of 6.9 per cent. Since contributing to the column, his strategy has outperformed the benchmark 19 out of 25 months.
THEME FOR THIS MONTH...
Mr. Luo has found that picking stocks based on cheap valuations has worked well recently, including in June, while trend-following strategies (such as price momentum and analyst sentiment-based factors) underperform. But large-cap and low-beta stocks started to recover last month, which suggests that trend-following strategies may turn the corner soon.
"In reaction to the current environment, we propose a more balanced approach by ranking the Canadian materials stocks based on valuation, analyst sentiment, and liquidity," Mr. Luo said. "Value style is likely to continue to survive, while improvement in liquidity profile tends to be a good defensive strategy. Analyst revision factors have a great long-term track record in Canada."