What are we looking for?
Canadian stocks that are well positioned for future growth, have an established history of low earnings volatility and trade at attractive valuations.
The screen
We screen for stocks that have demonstrated a disciplined approach to earnings growth, combining reasonable valuations, strong underlying businesses with room for bottom line expansion, positive investor sentiment and low leverage.
Consistent and reliable earnings indicate a lower probability of negative earnings surprises, and may attract institutional investors that prefer lower variations in earnings, in addition to potentially reducing borrowing costs. Our criteria cover valuation, trailing fundamentals, future growth and risk factors:
- Price-to-earnings and price-to-book value ratios less than the S&P/TSX composite (16.82 and 1.98), and long-term debt to equity less than 85 per cent;
- Average three-year quarterly earnings surprise within +/– 10 per cent;
- Short interest (percentage of shares outstanding sold short) less than the S&P/TSX average (2.0 per cent);
- Positive earnings growth over the next fiscal year;
- Trading price less than the average broker target price.
More about Thomson Reuters
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What did we find?
Our screen yields 15 companies, with Royal Bank of Canada leading the pack in terms of market capitalization. In fact, the top three constituents are within the financials sector, where analysts have placed high expectations on earnings growth ranging from 7 per cent to 14.6 per cent; this is also reflected in their price targets, as they're significantly above trading prices.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.