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What we're looking for

A stock picker's portfolio.

While just about all equity investors fared well in 2013 as markets around the world soared, 2014 is going to be more challenging.

After the great run of the past few months, many sectors appear fairly valued if not expensive.

Investors in search of additional profits should look for stocks that offer both high quality earnings as well as growth potential.

How we did it

Our friend, Craig McGee, senior consultant at CPMS Morningstar Canada, restricted his search to the largest four stocks in each sector covered by the CPMS Canadian database and also the largest four stocks per sector in the CPMS U.S. database.

He sought the stocks in this group that had the best combination of the following criteria:

  • A strong expected return on equity;
  • A high growth rate in earnings per share (EPS) over the past five years;
  • A three-month revision to consensus EPS estimates that was positive (or at least less negative than that of other stocks in the sector);
  • High net profit margin;
  • Strong total return in 2013.

He chose one stock from each sector in Canada and one stock from each sector in the United States.

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia.

Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers.

CPMS data cover more than 95 per cent of the investable North American stock market.

What we found

This list of 20 stocks may provide a good starting point for investors looking for opportunities in the months ahead.

As always, you should do your own research before investing in any of these names.

CPMS stock picker's portfolio for 2014

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