Sudip Ghosh is senior institutional account manager of global equity and market data sales at Morningstar Research Inc.
What are we looking for?
Inexpensive Canadian stocks that will respond well to a recovery in consumer spending.
As in the United States, the consumer discretionary subindex was the top performing sector on the S&P/TSX last year. If we believe in the consumer recovery story, stocks in this sector should continue to perform well.
The screen
We screened for the following criteria:
- A market cap exceeding $300-million;
- Positive analyst estimate revisions over the past three months;
- Quarterly sales momentum that is greater than zero, relative to the industry median;
- Positive normalized three-year earnings per share growth;
- A trailing price-to-earnings ratio that is less than the industry median.
We then sorted the list by returns over the past 12 months.
What we found
Auto-related companies such Magna International Inc., Linamar Corp., and Exco Technologies Inc. topped the list, with returns of 50 per cent or more over the past 12 months. All three trade at about 70 per cent of the industry median price-to-earnings ratio. Exco appears to have had the most upside surprise for analysts, of all the names on the list.
Telecommunications and media companies such as Cogeco Inc., Cogeco Cable Inc. and Corus Entertainment Inc. also make an appearance. Radio and television station owner Corus had the most meagre returns over the past 12 months, barely 0.2 per cent.
Of all the names on the list, coffee and doughnuts chain Tim Hortons Inc. is probably the least inexpensive, with a price-to-earnings ratio closest to the industry median, and with one of the least powerful sales momentum numbers as well. Along with Canadian Tire Corp., it also appears to have impressed analysts the least. It returned about 16 per cent over the past 12 months.
Sudip Ghosh is senior institutional account manager of global equity and market data sales at Morningstar Research Inc.