Stingy Investor Search - Contact - Subscribe - Login
  Home | Articles | Links | SNW
 
The Top 200 Canadian Stocks for 2011

As most seasoned investors know, beating the market isn't as easy as it looks. Few amateur investors can do it for even a year or two. Despite their high six-figure salaries, most of the top mutual fund managers on Bay Street find themselves faltering after a just few years. But beating the market was the lofty goal we set ourselves with the MoneySense Top 200 All-Stars. And this year, we're pleased to announce that we've done it again. In fact, in this, the seventh year of our stock-picking adventure, our Top 200 All-Stars cruised to an easy one-year gain of 19.7% - soundly trouncing the S&P/TSX Composite Index (XIC) by a full 5.5 percentage points. Even more impressively, when you look at our five-year performance history, you'll find that we have once again outperformed every single Canadian equity mutual fund.

As it happens, this was about an average year for our top stocks. If you had bought equal amounts of the All-Stars and rolled your gains into the new players each year, you'd now be sitting on a 19.1% average annual return over the last six years, not including dividends. By way of comparison, that's more than 12 percentage points higher than the annual return of the S&P/TSX Composite (XIC), which climbed just 6.5% a year over the same period.



Last year we found that our All-Stars bested every single Canadian equity fund over the prior five years. Well, we couldn't resist making the comparison again. When we did, we discovered that over the last five years, our All-Stars beat the best Canadian equity fund (in either the pure or focused categories) by nearly two percentage points a year - and the second best fund by more than three percentage points a year. The S&P/TSX Composite, meanwhile, trailed by more than eight percentage points annually.

To be fair, the comparison isn't completely precise. For instance, the performance period in question doesn't match exactly. It's off by a few days because we don't recruit our team at exactly the same time each year. Also, we haven't included trading commissions which, although low these days, vary from investor to investor. On the other hand, our gains don't include dividends - whereas active-fund returns do - so we don't think we're being too unfair to the funds.

We're very pleased with our performance record. As you can see in Capital Gains, if you had split $100,000 equally among our original All-Stars six years ago, then sold them and rolled your gains into the new batch each year, your portfolio would now be worth $285,000 - almost triple your original investment. Still, we want to stress that while we've done very well over the last six years, those kinds of gains don't come without risk. That means it's almost inevitable that we will eventually run into a soft patch. We believe that our stock picking methodology works well over the long term, but we're keenly aware - and you should be too - that we can't predict the future from year to year. That means it's quite possible that this year's All-Stars could disappoint.

While nothing's a sure thing, we hope that our track record will whet your appetite for this year's Top 200. As in prior years, we put each of Canada's 200 largest companies through its paces and graded each one on its investment merit. We deliver an easy-to-use scorecard packed full of just the sort of information that appeals to most investors. In fact, we think the Top 200 gives you a more objective look at large Canadian stocks than you're likely to find from any other single source.

Importantly, the Top 200 offers a logical and consistent approach to selecting stocks that isn't influenced by feelings or fleeting fads. Nor do we rely on gut instincts or happy visions of the future. Instead, our results are based entirely upon the numbers. Our opinions about a company don't enter into it.

We begin by identifying the largest 200 companies in Canada by revenue. Using Bloomberg data, we evaluate each stock, first for its attractiveness as a value investment and then on its appeal as a growth investment. (Value investors like profitable stocks that trade at low multiples of book value and pay juicy dividends. Growth investors like companies with momentum and expanding earnings.) Our value and growth tests are driven by sophisticated calculations, but in the end we reduce everything about a stock to two grades: one for its value appeal, one for its growth potential.

The grades work just like they did back when you were in school. The best competitors are awarded an A. Solid athletes get by with a B or a C. Those in need of improvement go wheezing home with a D or even an F. A select group of stocks - those that manage to achieve at least one A and one B on the value and the growth tests - make our All-Star team. Only 12 stocks got the honour this year. But before we talk about the new All-Stars, here's how we rate all 200 stocks.

The value test

Value investors like solid stocks selling at low prices, so we begin by looking for those with low price-to-book-value ratios (P/B). This number compares the market value of a company to how much cash you could raise by selling off the company's assets (at balance-sheet prices) and paying off the firm's debts. Low P/B ratios provide some assurance that you're not paying much more for a stock than its parts are worth. To get top value marks, a stock has to possess a low price-to-book-value ratio compared to the market and also compared to its competitors within the same industry.

We also like to track price-to-tangible-book-value ratios. Tangible book value is like regular book value, but it ignores any intangible assets (such as goodwill) a firm may have. It's an even sterner test of how much a company would be worth if it had to be closed down and sold off for scrap.

Other factors matter, too. Good companies produce profits, so we award higher scores to firms that have positive price-to-earnings ratios (this backward-looking figure is known as the trailing 12-month P/E ratio). We also reward a company if industry analysts expect it to be profitable and have a positive P/E over the next year (this number is known as the forward P/E ratio).

Because we like our investments to pay, we award extra marks to dividend-generating stocks - the stocks that dish them out tend to outperform. To ensure a company won't capsize from excessive debt, we penalise companies living on credit. We award the best grades to firms with low leverage ratios (defined as the ratio of assets to stockholder's equity) compared to their peers. Finally, we combine these factors into a single value grade. Only 21 stocks got an A this year.



Value Team
ALGOMA CENTRAL (ALC)
ATCO (ACO.X)
CANACCORD FINANCIAL (CF)
COLABOR GROUP (GCL)
DOREL INDUSTRIES (DII.B)
EMPIRE (EMP.A)
ENSIGN ENERGY SERVICES (ESI)
FAIRFAX FINANCIAL (FFH)
GENWORTH MI CANADA (MIC)
GOODFELLOW (GDL)
GROUPE AEROPLAN (AER)
HIGH LINER FOODS (HLF)
INDIGO BOOKS & MUSIC (IDG)
MAPLE LEAF FOODS (MFI)
NEWALTA (NAL)
POWER CORP OF CANADA (POW)
SHERRITT INTERNATIONAL (S)
SUN LIFE FINANCIAL (SLF)
TRANSCONTINENTAL (TCL.A)
TVA GROUP (TVA.B)
UNI-SELECT (UNS)


The growth test

The first mark of a good growth stock is, not surprisingly, growth. We start by awarding high marks to any stock that achieved good earnings-per-share and sales-per-share growth over the past three years. (Given the recession, even a bit of earnings growth was something of a feat this year.) We also track each firm's growth in total assets since last year to get a sense of recent trends.

We want to be sure that the market is taking note of a company's improving situation, so we hand out additional marks to stocks that are strong performers relative to other stocks. In particular, we favour stocks that have provided good total returns over the past year.

As great as growth is, we hedge our bets by checking out each stock's return on equity. This statistic measures how much a firm is earning compared to the amount that shareholders have invested. It is a key indicator of the quality of a business. Only those stocks with healthy returns on equity compared to others in their industry get top marks.

Finally, since no one wants be the last buyer in a bubble, we examine each stock's price-to-sales ratio. This ratio measures the stock's price in comparison to the company's sales. Low to moderate price-to-sales ratios indicate stocks that are reasonably priced and we award them extra marks. In contrast, firms with high price-to-sales ratios may be glamour stocks that could disappoint.

Putting these growth and quality indicators together, we arrive at a final growth grade. Only 21 out of 200 stocks earned an A this year.

Growth Team
AGRIUM (AGU)
ALIMENTATION COUCHE-TARD (ATD.B)
ALLIANCE GRAIN TRADERS (AGT)
ATCO (ACO.X)
AUTOCANADA (ACQ)
BCE (BCE)
BMTC GROUP (GBT.A)
CHURCHILL (CUQ)
COGECO CABLE (CCA)
COGECO (CGO)
DOMTAR (UFS)
HIGH LINER FOODS (HLF)
LEON'S FURNITURE (LNF)
LOBLAW COMPANIES (L)
MAGELLAN AEROSPACE (MAL)
METRO (MRU.A)
RICHELIEU HARDWARE (RCH)
SAPUTO (SAP)
SUNOPTA (SOY)
TELUS (T.A)
WINPAK (WPK)


The All-Star team

As we mentioned previously, only 12 stocks earned at least one A and one B on our value and growth tests.

We are pleased to see six of last year's All-Stars make the cut again this year. The veterans are: ATCO (ACO.X), Dorel (DII.B), Fairfax Financial (FFH), High Liner Foods (HLF), Leon's (LNF), and TVA Group (TVA.B). The new additions are: Alimentation Couche-Tard (ATD.B), AutoCanada (ACQ), Domtar (UFS), Goodfellow (GDL), Groupe Aeroplan (AER), and Magellan Aerospace (MAL).

High Liner has been on the All-Star team for the last two years and has climbed more than 57% since it debuted. It is also one of only two firms to get an A for both value and growth this year. As a result, the firm from Lunenburg, N.S., which serves up seafood to millions, remains a succulent investment.

ATCO is a sprawling utility and energy conglomerate run out of Alberta and is our second double-A stock this year. We've followed this firm for years and have come to appreciate its persistent dividend growth.

Our largest All-Star, by market capitalization, is the insurance firm Fairfax Financial which is run by noted value investor Prem Watsa. Remarkably, Prem managed to guide the firm to profitability both as the markets fell during the great recession and as they rebounded. Based on his long-term record, it's little wonder that many call him the Warren Buffett of the north.

Leon's Furniture, originally of Welland, Ont., sells furniture, appliances and electronics. It also has an enviable growth record, considering its industry, and currently represents a good value.

Alimentation Couche-Tard runs more than 5,800 convenience stores across Canada and the U.S. under three main banners: Couche-Tard, Mac's, and Circle K. It is this year's largest All-Star by revenue.

Domtar, a Fortune 500 pulp and paper firm, nosed its way into this year's list because it trades on the TSX and has significant operations in both the U.S. and Canada. But patriots should note that it is officially domiciled in the United States.

TVA Group, a subsidiary of Quebecor Media, operates the largest private French language TV network in North America and sells a slew of consumer magazines.

Dorel makes bicycles and products for children, but don't be fooled by its diminutive clients - it raked in more than $2 billion in sales over the last 12 months.

Groupe Aeroplan runs loyalty management operations, including a frequent flyer miles program and the complicated data analysis behind it.

The last three members of this year's team are on the small side. As a result, they are best considered by more experienced investors.

Magellan makes parts for the aerospace industry. But it comes with a side of risk because it is building a facility for the new Joint Strike Fighter which has become a bit of a political football. Goodfellow, of Delson, Que., is in the glamorous business of selling lumber and hardwood flooring, largely in central and eastern Canada. AutoCanada of Edmonton, Alta., profitably runs more than a score of auto dealerships in six provinces.

Before you rush out to buy any stock, do your own due diligence. Make sure that its situation hasn't changed in some important way. Keep an eye out for stocks that trade infrequently- they deserve care. Read each firm's latest press releases and regulatory filings. Scan newspaper stories to make sure you're aware of important developments and breaking news. If you do, you'll be more comfortable with your team - and greatly increase your chances of success.

All-Star list
ALIMENTATION COUCHE-TARD (ATD.B)
ATCO (ACO.X)
AUTOCANADA (ACQ)
DOMTAR (UFS)
DOREL INDUSTRIES (DII.B)
FAIRFAX FINANCIAL (FFH)
GOODFELLOW (GDL)
GROUPE AEROPLAN (AER)
HIGH LINER FOODS (HLF)
LEON'S FURNITURE (LNF)
MAGELLAN AEROSPACE (MAL)
TVA GROUP (TVA.B)




First published in the December/January 2011 edition of MoneySense magazine.

Added:

Annual Performance
YearCapital gain
2005-2006+57.6%
2006-2007+37.6%
2007-2008+16.2%
2008-2009-32.9%
2009-2010+41.0%
2010-2011+19.7%


 
Globe & Mail Articles
 Portfolios

 Dividend All-Stars for 2024
 250 Megastars for 2024
 Extreme yields
 The easy way
 Smaller stable dividend
 250 Megastars for 2023
 Champagne portfolio
 Screaming Value
 Blended momentum
 Dividend monster
 Frugal dividend
 Stable dividend
 Speads and recessions
 TSX 60 for value investors
 Looking at 10-year returns
 Watching for a bottom
 Oh, bother!
 Low P/E DJIA
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Long-Short
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

MoneySaver Articles
 2 Graham Stocks for 2018
 2 Stingy Stocks for 2017
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Old MS Articles
 Cdn Top 200 2018
 Cdn Top 200 2017
 Cdn Top 200 2016
 Cdn Top 200 2015
 Cdn Top 200 2014
 Cdn Top 200 2013
 Cdn Top 200 2012
 Cdn Top 200 2011
 Cdn Top 200 2010
 Cdn Top 200 2009
 Cdn Top 200 2008
 Cdn Top 200 2007
 Cdn Top 200 2006
 Cdn Top 200 2005
 US Top 500 2018
 US Top 500 2017
 US Top 500 2016
 US Top 500 2015
 US Top 500 2014
 US Top 500 2013
 US Top 500 2012
 US Top 500 2011
 US Top 500 2010
 US Top 500 2009
 US Top 500 2008
 US Top 500 2007
 US Top 1000 2006
 Dividends 100 2017
 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
 Retirement 100 2013
 Retirement 100 2012
 Retirement 100 2011
 Retirement 100 2010
 Income 100 2009
 Income 100 2008
 Income 100 2007
 Top Trusts 2006
 Top Trusts 2005
 Hot Potato
 Buffett Buys
 FB IPO
 Stocks that pay
 Value in the S&P500
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividends
 Dividend growers
 Graham's prescription
 The case for optimism
 Wicked investments
 Simply spectacular
 Small stocks, big profits
 Value that sizzles
 So simple it works
 No assembly required
 Investing by the book
 Invest like the masters
 A simple way to get rich
 Stocks for cannibals
 Car bites dogs
 So easy, so profitable
 Dogs of the Dow
 Money for nothing
 Yield of dreams
 Return of the master

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Flip Books



 
About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...