What are we looking for?
The stocks that UBS's Canadian analysts most strongly like and dislike over the near term.
UBS Canadian Alpha Preferences portfolio
UBS Securities Canada Inc., the Canadian arm of Swiss-based investment giant UBS AG, regularly compiles a list of its equity analysts' "most preferred" and "least preferred" Canadian stocks. These represent the picks for which the analysts consider, with their highest level of conviction, as likely to outperform or underperform their sector peers over the next 60 to 90 days - a considerably shorter-term call than the 12-month price targets UBS uses in its broader system for stock recommendations. It's also differentiated from UBS's Key Calls list, which looks at top picks among Canadian stocks based on a 12-to-18-month investment time frame.
The portfolio consists of pairs of stocks that individual analysts put forward in their given sector of coverage - representing, essentially, ideas for "pair trades," in which the investor would go long the most-preferred stock and short the least-preferred. The size of the portfolio goes up and down depending on how many analysts have most-preferred and least-preferred short-term trading recommendations at a given time; at the moment, there are six such pairings.
"An analyst will generally add a pair when they see an identifiable positive or negative catalyst ahead," said Stephanie Phillips, equity product and research business manager at UBS. "When an analyst removes any names, it could be [for]a variety of reasons such as price appreciation, limited near-term upside, passage of the catalyst, etc."
What did we find?
Ms. Phillips noted that the criteria for the Alpha Preferences picks are largely up to the individual analysts and their own approaches to stock analysis, so "there is no precise methodology." A look at the lists of most-preferred and least-preferred stocks (in the accompanying table) bears this out - it's hard to find any consistent patterns in the numbers.
In general, though, the stocks on the most-preferred list have lower consensus analysts' ratings than their sectoral counterparts on the least-preferred list; many of the most-preferred also have had more disappointing earnings growth over the past 12 months. If there is any pattern to discern in the picks, it's that past disappointments may have lowered expectations for these stocks on the Street - lowering the bar for some pleasant surprises that could fuel upside in the stock over the next couple of months.