What are we looking for?
Canadian companies showing strong economic performance as well as revenue growth, trading at least 10 per cent below their 52-week highs.
The screen
We screened all Canadian stocks covered by StockPointer (1,600) by looking at the following metrics:
- An upside potential between the stock price and its 52-week high of 10 per cent or greater;
- An economic performance index, or EPI (return on capital divided by cost of capital) above 1.0. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
- A return on capital of 10 per cent or greater;
- A positive sales growth over the past 12 months;
- An annualized dividend growth rate of 5 per cent or higher over one, two, three and four years;
- The market capitalization, dividend yield and price-to-earnings ratio are displayed for informational purposes.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic-value added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 6,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only nine companies fit our list of criteria. Out of that list, Magna International, Gildan Activewear and Stella-Jones stand out. All three offer double-digit 12-month sales growth, annualized dividend growth rates of 20 per cent or more over four years, while trading at reasonable price-to-earnings ratios given their quality and growth attributes.
Magna is also the stock trading at the lowest level compared with its 52-week high and at the lowest P/E ratio, reflecting the pressure it's been under for about a year. The company has suffered from the weakening of foreign currencies against the U.S. dollar and from the possible headwinds in new-vehicle sales across the globe. However, its leading position as a global manufacturer and supplier combined with its expansion in emerging markets make Magna an interesting option for the long-term investor.
Investors are advised to do additional research prior to investing in any of the companies mentioned.
Jean-Didier Lapointe is a financial analyst for StockPointer at Inovestor Inc.