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Presenting the best-performing investing style of 2012 (so far)

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What we're looking for

The best performing investing style of 2012.

To find what's in style, we turned to S&P Capital IQ, which tracks eight strategies or "style indicators," as it calls them. The winner so far this year is one based upon fundamental valuations, which has produced a 16.7 per cent return.

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How it works

Jamie Hynes, sales director with S&P Capital IQ, screened the Capital IQ global database for Canadian stocks that ranked highest on six factors (three of which are shown here) that make up the Valuations Style Indicator:

-low share price to book value per share;

-low share price to free cash flow per share;

-low share price to forward earnings per share;

-low share price to earnings adjusted for estimated long-term earnings growth and dividend yield;

-high EBITDA (earnings before interest, taxes, depreciation and amortization) to enterprise value (a company's market capitalization plus net debt);

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-low share price to operating cash flow (relative to companies in same industry).

In the accompanying chart, a stock's ranking on these factors is given in terms of percentiles of the S&P/TSX composite. A stock with a percentile ranking of 1 is in the top 1 per cent of the market for that criterion; one with a percentile ranking of 100 is in the bottom 1 per cent.

More about S&P Capital IQ

S&P Capital IQ offers a comprehensive set of tools for fundamental analysis of global securities, idea generation and workflow management. Its Web- and Excel-based platform provides access to both real-time and historical information on companies, markets, transactions and people around the world.

What we found

Many of the top 20 stocks in the valuations-based model have done poorly over the last year. This is typical of any value-based strategy – the stocks that are today's biggest bargains tend to be ones that have tumbled out of favour and are therefore cheap.

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To make sure you're not buying a "value trap" that is cheap for a good reason, you should do your own research before buying any of the names listed here. You should also be prepared to be patient. While a value-based investing strategy has produced good results over time, no style is always in fashion.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More


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