Morningstar What are we looking for?
Stocks garnering positive attention by Street research analysts.
The screen
After the steep sell-off a couple of weeks ago, the resource-heavy S&P/TSX Composite Total Return Index looks to have rebounded, amid news the Bank of Canada will keep interest rates the same, with signals of future hikes. Given the volatility, jittery investors might be curious what’s catching the attention of analysts on the Street. To help with this question, I used Morningstar CPMS to create a strategy that largely focuses on Street analyst sentiment, by ranking the 710 companies in the Canadian database on the following (largely sentiment-driven) metrics:
- Current year median EPS growth rate (calculated by taking the median projected earnings per share for the current fiscal year and comparing it with the median projected EPS for the next fiscal year);
- Next year’s median EPS growth rate (similar to above, but moving measures forward by one fiscal year);
- Three-month EPS estimate revision (today’s consensus estimate for EPS compared with what it was at month-end, three months ago);
- Year-over-year growth rate in the latest reported EPS.
To ensure a reasonable consensus, only companies with more than three active analyst estimates for the current fiscal year were considered. Additionally, only companies with a positive trailing return on equity were considered (to ensure profitability).
More about Morningstar
Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.
What we found
TSX stocks with positive analyst sentiment
| RANK | COMPANY | TICKER | MORNINGSTAR SECTOR | MKT. CAP. ($ MIL.) | CURR. YR. EPS GRTH. RATE (%) | NEXT YR. EPS GRTH. RATE (%) | 3M EPS EST. REV. (%) | YOY EPS GRTH. RATE (%) | TRAIL. ROE (%) |
| 1 | Headwater Exploration | HWX-T | Energy | 1,411.3 | 165.0 | 34.6 | 20.9 | 198.2 | 15.2 |
| 2 | MDA Ltd. | MDA-T | Industrials | 1,124.0 | 165.0 | 102.7 | 10.4 | 19.2 | 1.6 |
| 3 | Cardinal Energy Ltd. | CJ-T | Energy | 795.6 | 155.4 | 19.7 | 7.6 | 255.0 | 3.9 |
| 4 | MEG Energy Corp. | MEG-T | Energy | 4,751.9 | 202.9 | 4.8 | 21.2 | 255.0 | 3.4 |
| 5 | Hudbay Minerals Inc. | HBM-T | Basic mat'ls | 2,445.3 | 244.0 | 65.2 | -4.2 | 244.6 | 1.2 |
| 6 | Ivanhoe Mines Ltd. | IVN-T | Basic mat'ls | 13,477.3 | 177.7 | 7.9 | 28.8 | 69.8 | 0.8 |
| 7 | Green Thumb Indust. | GTII-T | Health care | 4,583.6 | 108.0 | 32.5 | 0.0 | 161.8 | 6.7 |
| 8 | Martinrea Int'l Inc. | MRE-T | Cons. cyclical | 850.3 | 183.6 | 84.6 | 2.6 | -129.9 | 7.4 |
| 9 | Aritzia Inc. | ATZ-T | Cons. cyclical | 5,110.7 | 17.8 | 21.9 | 13.4 | 110.4 | 37.1 |
| 10 | Bragg Gaming Group | BRAG-T | Comm. Svcs. | 135.9 | 63.5 | 84.3 | 6.4 | -104.0 | 3.3 |
| 11 | Black Diamond Group | BDI-T | Industrials | 269.5 | 23.8 | 40.4 | 0.0 | 223.6 | 5.1 |
| 12 | Polaris Infrastructure | PIF-T | Utilities | 317.1 | 195.4 | 77.1 | 0.0 | -106.5 | 1.0 |
| 13 | Tecsys Inc. | TCS-T | Technology | 619.9 | 135.7 | 78.4 | -0.9 | -58.0 | 9.0 |
| 14 | Trevali Mining Corp. | TV-T | Basic mat'ls | 125.7 | 30.4 | 40.0 | 0.0 | 150.5 | 4.8 |
| 15 | Innergex Renew. Energy | INE-T | Utilities | 3,611.0 | 87.4 | 53.7 | 0.0 | -1.9 | 1.6 |
Source: Morningstar CPMS; data as of Feb. 1
I used Morningstar CPMS to back-test the strategy from December, 1991, to December, 2021, assuming an equally weighted 15-stock portfolio with no more than three stocks per economic sector. Once a month, stocks were sold if they fell below the top 25 per cent of the index based on the above metrics, or if ROE turned negative. When sold, stocks were replaced with next qualifying stock not already held in the portfolio, considering the aforementioned sector limits.
On this basis, the strategy produced an annualized total return of 17.3 per cent, while the S&P/TSX Composite Total Return Index advanced 8.8 per cent. Notably, the turnover on the portfolio over the back-test period was 240 per cent, implying that, on average, the 15-stock portfolio was replaced 2.4 times each year, showcasing the often fast-moving nature of Street analyst sentiment. The stocks that meet requirements to be purchased into the strategy today are listed in the table.