A new strategy to identify cheap and thrifty stocks - MoneySense

A new strategy to identify cheap and thrifty stocks

Norm Rothery introduces a new stock screen that blends momentum and value strategies. It’s a good starting point for more aggressive investors who want to put their money to work


climbing catI’m pleased to introduce a second stock picking method to the readers of my MoneySense blog. I’ll dub it the Climbing CATS approach in keeping with the cute pet theme. But the loyal followers of the Safer Dogs shouldn’t despair because I’ll regularly rotate between the two methods. As a result, my next blog will contain the Dogs, the following one will present the CATS, and so on.

The Climbing CATS strategy is based on a momentum plus value combination, which has been has been efficacious to us in the past. It starts with reasonably-sized Canadian firms and then focuses in on value stocks. Call them Cheap And Thrifty Stocks, or CATS, if you will. But it also looks for firms with strong relative momentum that have Climbed higher in recent times. Thus, the Climbing CATS strategy is born.

More specifically, when it comes to size we start with a list of about 200 of the largest stocks that trade on the TSX. We then narrow down the search to stocks that have low-to-moderate price-to-earnings ratios. Finally, we pick stocks that have fared the best over the last 12 months.

The current list of Climbing CATS is shown in the table below. It represents a starting point for those who want to put some money to work and is best suited for more aggressive and experienced investors. Investors should aim to hold the CATS for a year. (Active traders might rebalance more frequently, say once a quarter.)

Climbing CATS

Company Price P/E Dividend Yield 1-Year Total Return
Enerplus (ERF) $11.02 9.15 1.09% 133%
Air Canada (AC) $13.35 4.32 0.00% 59%
Industrial Alliance (IAG) $58.36 11.24 2.40% 55%
Norbord (OSB) $38.87 13.83 1.03% 55%
Superior Plus (SPB) $12.97 6.62 5.55% 50%
National Bank (NA) $58.04 14.69 3.86% 47%
TFI International (TFII) $32.00 4.9 2.37% 45%
Cascades (CAS) $13.10 9.29 1.22% 44%
Open Text (OTEX) $45.80 7.69 1.36% 42%
Bank of Montreal (BMO) $103.10 13.66 3.41% 37%

Source: Bloomberg as of March 13, 2017


Price: Closing price per share

P/E: Price to Earnings Ratio

Total Return: The total return generated by the stock over the last year

Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage

As always, do your own due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)