What are we looking for?
Canadian-listed stocks that offer defensive characteristics amid growing uncertainty in the broader market.
The S&P/TSX Composite Index has encountered significant resistance near the 34,400 level on two separate occasions, raising the possibility of a double-top formation, a technical pattern that often signals a shift in trend. In this environment, a disciplined, rules-based approach to finding quality companies with strong income profiles and resilient balance sheets may help investors navigate potential further market weakness.
The screen
Using Trading Central Strategy Builder, we began by setting a minimum market capitalization threshold of $5-billion, focusing on larger, more established companies with stronger balance sheets, more predictable earnings and lower volatility than smaller-cap peers.
We applied Central’s Quantamental framework, a systematic 20-factor model that combines valuation, growth, quality, momentum and income, requiring a minimum rating of at least 50 out of 100.
To further support the defensive tilt, we screened for a minimum dividend yield of 2 per cent and applied filters on dividend coverage and debt-to-equity ratio to favour companies with well-supported payouts and conservative capital structures.
We have also included year-to-date and one-year price performance for your 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 around the globe.
What we found
While the screen was designed with a defensive tilt, it is worth noting that four of the 10 names are from the energy sector, a reflection of the significant improvements in balance sheet quality, dividend sustainability and free cash flow generation that Canada’s largest energy producers have achieved in recent years.
Topping our list is Canadian Natural Resources Ltd. (CNQ-T), one of Canada’s largest independent crude oil and natural gas producers. With a Quantamental Rating of 61 and a dividend yield of 4.09 per cent supported by exceptional dividend coverage of 219.59 per cent and a conservative debt-to-equity ratio of 0.37
Endeavour Mining PLC (EDV-T), one of the world’s leading gold producers, stands out as the top-ranked name by Quantamental Rating at 65 and the strongest performer over the past year, with a gain of 125.7 per cent. The company offers a dividend yield of 2.34 per cent backed by robust coverage of 230.26 per cent and a low debt-to-equity ratio of 0.23, making it a compelling combination of income and balance sheet strength in a sector that has benefited from elevated gold prices.
Within financials, Manulife Financial Corp. (MFC-T), Great-West Lifeco Inc. (GWO-T), and Sun Life Financial Inc. (SLF-T) highlight the defensive appeal of Canada’s life insurance sector. All three companies offer dividend yields above 3 per cent with conservative debt profiles, and each stock trades within 3 per cent of its 52-week high, a sign of resilience relative to the broader market.
Trading Central Strategy Builder offers a back-testing capability to evaluate how well an investing strategy would have performed in the past. Using a five-year historical period with quarterly rebalancing, the screen described above generated a hypothetical annualized return of 20 per cent, compared with 12 per cent for the S&P/TSX Composite Index over the same period.
This quantitative approach is accessible through the recently launched Trading Central Quant Canada 50 Equity Index ETF (TCCA), which tracks the Solactive TC Quant Canadian 50 Index. Built on the same multifactor framework highlighted in this screen, the ETF offers investors a simple, rules-based way to maintain disciplined exposure to Canadian equities, particularly relevant in periods of heightened market uncertainty.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.