What are we looking for?
The S&P/TSX Composite is heavily concentrated in energy and basic materials, which together account for roughly 30 per cent of the index. With those sectors well covered here in recent months, this week we turn our attention to the broader, often overlooked corners of the Canadian market, where quality businesses with strong fundamentals and conservative balance sheets are quietly doing the work.
The Screen
We used Trading Central’s Strategy Builder to screen TSX-listed companies, excluding the energy and basic materials sectors. Our criteria required a minimum TC Quantamental Rating of 55 – a composite score that evaluates companies across quality, value, income, and momentum factors.
We also applied a minimum market capitalization of $1-billion, a minimum stock price of $10, and a maximum debt-to-equity ratio of 1.0 to filter for financial discipline, and included each company’s price-to-earnings ratio for valuation context. The screen returned 10 companies spanning retail, industrials, financial services, asset management, consumer staples, and technology.
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 Aritzia Inc. ATZ-T, a Vancouver-based women’s fashion retailer that designs and sells clothing and accessories through boutique brands including Wilfred, TNA, and Sunday Best. With a TC Quantamental Rating of 60, supported by strong growth (84) and quality (73) subscores, the company stands out for its robust fundamentals, including an earnings-per-share (EPS) growth rate of 84 per cent and a return on equity of 30 per cent. With a market cap of $17.15-billion and shares up 26.4 per cent year-to-date, Trading Central’s one-year target price is $145. Aritzia is a current holding in the Trading Central Quant Canadian 50 Index ETF TCCA-T.
Sun Life Financial Inc. SLF-T is one of Canada’s largest diversified insurance and financial services companies. With the largest market cap on our list at $55.14-billion, Sun Life earns a TC Quantamental Rating of 60, driven by very strong growth (81) and solid quality (62) subscores, reflecting EPS growth of 202 per cent last quarter and a return on equity of 14 per cent. The stock trades at a reasonable price-earnings ratio (P/E) of 16.18 and offers a dividend yield of 3.62 per cent, adding an income component to its quality profile. Shares are up 15.3 per cent year-to-date. TC’s one-year target price is $97.50. Sun Life is also a current holding in the Trading Central Quant Canadian 50 Index ETF.
Maple Leaf Foods Inc MFI-T is one of Canada’s leading packaged meat and food companies, manufacturing and marketing prepared meats, poultry, and plant-based protein products. The stock was trading around record highs on Thursday, with shares up 24 per cent year-to-date. MFI earns a TC Quantamental Rating of 61, underpinned by very strong quality (79) and very strong momentum (89) subscores, with a standout return on equity of 38 per cent with EPS rebounding strongly on a year-over-year basis. The stock also offers a dividend yield of 3.13 per cent. TC’s one-year target price is $31.20.
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 21 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, 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 investing in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.