Coming off a negative year for Canadian equities, few stocks were able to pass all of our tests last year. But this year is a different story. We identify 14 All-Star Stocks, three more than last year.
Only one stock made it to the very top of the Canadian class this year by earning both an A for value and an A for growth. The coveted double-A prize went to Toronto-based Fairfax Financial. The insurance-based conglomerate is run by value investor Prem Watsa in a style similar to his hero Warren Buffett’s Berkshire Hathaway. As it happens, Berkshire is on the U.S. All-Star list this year and I own shares of both firms.
The other 13 members of the All-Star team earned at least one A and one B on our value and growth tests. The team is larger than usual this year and we hope that’s a sign that the Canadian market isn’t over extended.
Five of this year’s All-Stars, including Fairfax, were also on the All-Star team last year. Two of the returning team members are Power Corp of Canada and its subsidiary Power Financial. Both firms are based in Montreal and have interests in insurance, money-management and a slew of other businesses. They also happen to pay generous dividend yields of 4.7% and 5.0%, respectively, and I own shares of both. Fortis was the next company to make the team again. It’s an electric and gas utility based in St. John’s, Nfld. that recently made a splash by buying U.S.-based ITC Holdings. The last returning team member is auto parts firm Linamar, which makes its home in Guelph, Ont. The company’s sales and earnings have been zooming ahead at a ferocious clip over the last three years.
The new members of the All-Star team include two well-known Toronto-based retailers. They are Indigo Books & Music and Canadian Tire. The former has, against the expectations of many, survived the digital revolution and chalked up an impressive 53% total return over the last year. The latter is a staple for handymen across the nation and its stock has rebounded nicely from its lows in 2009.
Two life and health insurance companies also made the grade. The first is Sun Life Financial, which makes its home in Toronto. The second is Industrial Alliance Insurance, which is based in Quebec City.
They’re joined by mortgage provider Home Capital Group, which hails from Toronto. Savers might know it better for the high interest savings accounts offered by its Oaken Financial brand. The stock trades at just six times earnings due to worries that the company might be hard pressed should the Canadian real estate market tumble.
On the materials side of the equation, Cascades makes and markets packaging and tissue products using recycled fibers. The firm is based in Kingsey Falls, Que. and its stock trades near a 52-week high. Martinrea International, from Vaughan, Ont., makes steel and aluminum parts primarily for the automotive sector.
TransForce helps to move materials by truck in North America and is headquartered in Montreal. Its stock trades at four times earnings thanks, in part, to the sale of its waste management segment last spring. Last but not least, WestJet Airlines takes to the skies and hails from Calgary.
Top 20 Canadian Value Stocks
These 20 stocks got A-grades for value.
Top 20 Canadian Growth Stocks
Before dashing off to buy any stock, do your own due diligence. Make sure its situation hasn’t changed in some important way. Read the latest press releases and regulatory filings. Scan newspaper stories and get up to speed on all the recent developments. (Take particular care when buying or selling stocks that trade infrequently.) If you do, you’ll be more likely to enjoy what the market has to offer.
★ = All-Star stock
✔ = Earns an A for both value and growth