What are we looking for?
Today’s screen turns to the sectors driving the Toronto Stock Exchange higher, applying Trading Central’s Quantamental scoring framework to separate the momentum leaders with real staying power from those simply riding the tide.
Technology, health care, industrials and financials emerged as the TSX’s standout sector performers over the past week. Rather than chase that strength at face value, we applied a 20-factor model to test whether the fundamentals underneath these sectors justify the price gains. This rules-based approach strips out emotional bias and narrows the field to companies with the balance sheets and earnings quality to extend their run.
The screen
We used Trading Central Strategy Builder to screen common shares listed on the Toronto Stock Exchange within the four sectors, ranked using the TC Quantamental Rating. That’s the same quantitative strategy underpinning the recently launched Trading Central Quant Canada 50 Equity Index ETF (TCCA-T).
To qualify, a stock must carry a TC Quantamental Rating of 50 or higher, a composite score built from growth, income, quality, momentum and valuation factors, and a market capitalization of $2-billion or more, which filters out smaller, less liquid names.
A dividend yield of at least 2 per cent was also applied to this week’s screen, narrowing the results to companies pairing sector strength with an income component.
We have also included year-to-date, and one-year price performance for reference.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is Bank of Nova Scotia BNS-T, one of Canada’s Big Five banks with a sprawling footprint across domestic and international banking. With a TC Quantamental Rating of 53, the company stands out for its blend of income and earnings momentum, posting diluted earnings-per-share growth of 35.1 per cent in its latest quarter alongside a 3.7-per-cent dividend yield. The stock has gained 64.4 per cent over the past year and 20.4 per cent year-to-date.
Open Text Corp. OTEX-T, a global information management software company, stands out elsewhere on the screen, carrying the highest TC Quantamental Rating of the group at 63 alongside the highest dividend yield at 4.96 per cent. The stock of the Waterloo, Ont.-based company trades at an EV/EBITDA multiple of just 6.8 times, a low valuation relative to its rating that stands in contrast to the share price, which has declined 22.6 per cent over the past year and 28 per cent year-to-date – a gap that suggests underlying quality the market may not have fully priced in.
Westshore Terminals Investment Corp. WTE-T delivered the strongest year-to-date performance on the list, with shares up 43.9 per cent since January and 39.7 per cent over the past year. The Vancouver-based transportation company posted diluted EPS growth of 63.2 per cent in its latest quarter, the strongest earnings acceleration in the group, and pairs that momentum with a 4-per-cent dividend yield and a TC Quantamental Rating of 51.
Trading Central Strategy Builder offers a back-testing feature that allows users to assess the historical performance of an investment strategy. Utilizing a five-year historical period with quarterly rebalancing, the described screen had a 17-per-cent annualized total return, outperforming the S&P/TSX Composite Index, which achieved an 11-per-cent annualized total return over the same period.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of investing in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.