What are we looking for?
Companies that offer steady and predictable growth.
More about today's screen
As we do every Tuesday, we'll ask Morningstar CPMS for help with this screen.
CPMS's predictable growth model portfolio looks for stocks with:
- a low price-to-earnings ratio using the current year's median earnings estimate;
- a high reinvestment rate, which is calculated as return on equity after dividends;
- low earnings variability or volatility;
- a low price-to-book-value-per-share ratio;
- high earnings momentum shown by earnings growth over the past four quarters;
- earnings estimates that have been revised higher;
- positive earnings surprises last quarter.
More about CPMS
CPMS is a Toronto-based equity research and portfolio analysis firm owned by Morningstar Canada. It maintains a database of about 680 of the largest and more liquid Canadian stocks, plus another 2,100 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
The results are the top 15 stocks in CPMS's database of Canadian stocks.
This strategy has struggled since the financial crisis, as it is up just 0.3 per cent, annualized, over the last three years versus 4.1 per cent for the S&P/TSX Total Return Index. This is because deep value stocks performed the best coming out of the crisis. But the predictable growth model still has done well over the long-term: up 14.1 per cent annualized over the last 10 years, versus 6.2 for the S&P/TSX Total Return.
The portfolio has had a good year so far, up 5 per cent through last Thursday, versus 3.2 per cent for the S&P/TSX total return index.
"The predictable growth model has struggled over the last few years as earnings have been anything but predictable for companies in general," said Jamie Hynes, senior consultant with CPMS. "Recent performance is promising and the model is well positioned to benefit if earnings continue their recovery."