Canadian All-Star stocks report card - MoneySense

Canadian All-Star stocks report card

The Canadian All-Star Stock portfolio has been hampered by two underperforming stocks through two quarters, but this concentrated portfolio has identified more than its share of winners


Want to be a successful investor? Tony Fell, the retired chairman of RBC Capital Markets and a highly regarded investor in his own right, recently shared the secret to success and it can be summed up in a single word: patience. “Success is measured by decades, not by quarterly results,” he told a packed crowd of eager investors at the Ben Graham Centre’s 2017 Value Investing Conference.

It can take a while for the market to realize value. If you’ve done your due diligence then you should be content to wait and ignore the daily noise of the markets—but that doesn’t mean you should ignore your holdings completely. With that in mind, we are launching our inaugural quarterly report for the MoneySense All-Star Stocks, which are carefully screened by our own Norm Rothery every October. While we won’t updating our portfolio before the year is up—why mess with a good thing (see chart below)—the occasional check-in can be helpful.

There are two reasons why we feel this is important. First, investors always need to be on the lookout to see if new information emerges that changes your analysis on a stock. A quarterly check-in offers that insight. Second, because investors can be their own worst enemy, we hope a quarterly look will help calm the nerves of some investors who tend to abandon a strategy at the first sign of trouble.

It’s also instructive to see what’s up and what’s down to better understand what’s driving the current market moves.

In Canada, if not for the lousy performance of two stocks—Fairfax Financial and Home Capital Group—the All-Star Stocks would be well-out ahead of the S&P/TSX Composite (we use the iShares S&P TSX Capped Comp. (XIC) as our benchmark). Fairfax underwhelmed in 2016 in large part due to the company’s bearishness on the markets. While this approach helped Fairfax outperform during the last crash, it’s cost them as markets climbed out of the abyss. Fairfax shares are off by 16.1% since we cultivated our All-Star list on October 18, 2016.

The other wayward stock in our All-Star list is Home Capital Group. The mortgage lender was already dealing with poor operational performance and delays to new initiatives when it’s CEO was suddenly dismissed, following a series of enforcement notices issued by the Ontario Securities Commission. That’s the risk when you do a fundamental analysis; it can’t predict what might happen to a company, like the ousting of a CEO. Shares of Home Capital Group are off 12.8% in the six months since we named our All-Star stocks.

Despite these two blights, our All-Star stocks are keeping pace with our benchmark. As you’ll see from the charts and tables below, there are many more stocks to celebrate.

Based on the fundamentals as they looked in mid-October these companies are still All-Stars. It’s up to you to decide if they belong in your portfolio; we’re not due to revise our line up for another six months and we’ll keep you current on how we perform.

Top 5 All-Stars

Price (April 18) Total return through 6 months Dividend yield Price-to-earnings Price-to-book
Canadian Tire Corp Ltd (CTC/A) $165.40 27.1% 1.6% 18.2 2.4
Cascades Inc (CAS) $15.29 18.4% 1.0% 11.7 1.5
Martinrea International Inc (MRE) $9.50 15.9% 1.3% 6.3 1.0
Industrial Alliance Insurance & Financial Services Inc (IAG) $55.30 12.6% 2.5% 10.7 1.3
Power Financial Corp (PWF) $33.66 11.4% 4.9% 11.7 1.4

Source: Bloomberg, April 18, 2017

Top 5 Grade A Value Stocks

Price (April 18) Total return through 6 months Dividend yield Price-to-earnings Price-to-book
Transcontinental Inc (TCL/A) $23.85 33.3% 3.4% 9.4 1.7
TransAlta Corp (TA) $7.28 24.4% 2.2% 13.6 0.8
Genworth MI Canada Inc (MIC) $35.06 22.9% 5.0% 8.3 0.9
Capital Power Corp (CPX) $24.39 20.1% 6.4% 19.2 1.1
Bank of Montreal (BMO) $98.21 17.3% 3.6% 12.3 1.7

Source: Bloomberg, April 18, 2017

Top 5 Grade A Growth Stocks

Price (April 18) Total return through 6 months Dividend yield Price-to-earnings Price-to-book
Premium Brands Holdings Corp (PBH) $86.20 32.7% 1.9 41.4 6.0
New Flyer Industries Inc (NFI) $50.33 29.3% 1.9 17.9 3.7
Canadian Tire Corp Ltd (CTC/A) $165.40 26.0% 1.6 18.2 2.4
Cascades Inc (CAS) $15.29 17.6% 1.0 11.7 1.5
Toromont Industries Ltd (TIH) $45.90 15.6% 1.7 26.0 4.1

Source: Bloomberg, April 18, 2017