What are we looking for?
Canadian metals and mining stocks that combine financial quality, earnings growth and strong market performance.
The basic materials sector has been one of the stronger areas of the Canadian market over the past two months. That strength has been concentrated in metals and mining stocks, making the group a timely area to examine more closely.
Rather than simply chasing the strongest-performing names, we looked for established Canadian metals and mining companies with healthy balance sheets, a history of earnings growth and favourable quantitative characteristics.
The screen
Using Trading Central Strategy Builder, we began by focusing on Canadian companies in the metals and mining industry and setting a minimum market capitalization threshold of $2-billion, concentrating on larger, more established companies with greater scale and financial resources.
We applied Trading Central’s Quantamental framework, a systematic 20-factor model combining valuation, growth, quality, momentum and income, requiring a rating of at least 55 out of 100. The same proprietary framework underpins the Solactive TC Quant CA 50 Index, tracked by the Trading Central Quant Canada 50 Equity Index ETF (TCCA), which provides systematic exposure the top 50 highest-scoring Canadian companies.
To emphasize companies with a demonstrated record of earnings expansion, we required five-year historical earnings-per-share growth of at least 5 per cent.
We also limited the debt-to-equity ratio to 1. Balance-sheet strength can be particularly important in the cyclical metals and mining industry, where commodity-price swings can have a significant effect on revenue, cash flow and profitability.
Finally, we required shares to be trading within 15 per cent of their 52-week highs. This introduces a price-strength component to the screen, favouring companies that remain relatively close to their strongest levels of the past year while avoiding stocks that have experienced more substantial declines.
We have also included 52-week and year-to-date 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, indices, 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 K92 Mining Inc. (KNT-T), a gold producer with operations in Papua New Guinea. The company has a Trading Central Quantamental Rating of 68 and five-year historical earnings-per-share growth of 42.34 per cent, while its debt-to-equity ratio is just 0.04. The shares have gained 30.1 per cent year to date and 79.6 per cent over the past 52 weeks. K92 Mining is also a constituent of the Solactive TC Quant CA 50 Index, tracked by the Trading Central Quant Canada 50 Equity Index ETF (TCCA).
Another notable name is Wesdome Gold Mines Ltd. (WDO-T), a Canadian gold producer. The company has a Quantamental Rating of 64 and five-year EPS growth of 45.03 per cent, among the highest in our screen. Wesdome also carries very little debt, with a debt-to-equity ratio of just 0.01. Its shares have advanced 63.9 per cent year to date and 78.7 per cent over the past year. Wesdome is also a holding in TCCA.
Ero Copper Corp. (ERO-T), a copper producer with operations in Brazil, also stands out. The company has a Quantamental Rating of 66, five-year EPS growth of 35.2 per cent and a debt-to-equity ratio of 0.47. Its shares have gained 29 per cent year-to-date and 97.8 per cent over the past 52 weeks. Ero Copper is also held in TCCA.
Trading Central Strategy Builder provides a backtesting capability to evaluate how an investment strategy would have performed historically. Using a five-year historical period with quarterly rebalancing, the screen described above generated an annualized return of 22 per cent, compared with an annualized return of 12 per cent for the S&P/TSX Composite Index 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.