Skip to main content
number cruncher

What are we looking for?

Today, we are searching for undervalued Canadian companies with high economic value. In other words, we are looking at companies creating the highest economic profit for their shareholders that are trading below their intrinsic value.

The screen

We screened the S&P/TSX Composite Index for the top 20 stocks with a minimum market cap of $750-million and looked at the following metrics.

  • The economic performance index, or EPI (return on capital divided by cost of capital). An EPI ratio of one or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation). We want a ratio higher than one because it reflects wealth creation for shareholders.
  • A price-to-intrinsic-value ratio of less than one to ensure that the stock is trading at a discount relative to its intrinsic value. (A stock’s intrinsic value, or “true value,” is the price the stock should, at least in theory, eventually achieve when properly valued.)
  • Future growth value divided by market value (FGV/MV) is a ratio that helps determine whether the stock is trading at a discount or premium to its growth. A negative FGV/MV indicates the current market value is lower than the current value of the operations of the company.
  • A market value-added (MVA/MV) ratio that is positive to ensure the invested capital is working properly. (MVA is the total market value minus the capital that was invested in the company.) This metric shows us the difference between the market value of the company and the capital that was invested in it.

More about Inovestor

Inovestor for Advisors is a research platform application based on the economic profit approach. It aids advisers in quickly identifying attractive investment opportunities and easily communicating them to their clients. In addition to providing detailed reports on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts), Inovestor allows investors to create personalized filters and build custom portfolios.

What did we find?

Most companies are able to generate a return on capital much higher than their cost of capital. More than half of the companies in this top 20 list are priced at a discount to both their intrinsic value and their future growth value, and mostly derive from the financial and consumer discretionary sectors. A lot of the companies in the filter results are common household names, and are good wealth creators for their shareholders, such as Alimentation Couche-Tard Inc., Air Canada and Magna International Inc.

Select TSX stocks trading at a discount to their intrinsic value

CompanyTickerMarket Cap ($Mil)MVA on MVFGV on MVR/CPrice/ IVEPIRecent Price ($)1Y Return
CIBCCM-T 48,976 33.2%10.7%14.2%0.91.3 110.35 -0.8%
BCE Inc.BCE-T 48,158 41.3%-7.8%10.3%0.81.8 53.45 -5.8%
Thomson Reuters Corp.TRI-T 35,876 18.3%-11.9%9.0%0.61.1 50.58 -13.4%
Sun Life Financial Inc.SLF-T 31,636 23.1%-6.7%10.0%0.81.5 51.82 9.0%
Alimentation Couche-Tard Inc.ATD.B-T 29,812 54.1%-27.9%15.8%0.62.8 52.84 -4.0%
Magna International Inc.MG-T 26,930 29.9%-12.5%15.3%0.71.7 75.21 26.5%
Power Financial Corp.PWF-T 23,237 8.1%-17.5%13.9%0.61.4 32.55 -8.3%
Fairfax Financial HoldingsFFH-T 18,621 8.5%-62.0%14.5%0.62.3 671.00 7.9%
Open Text Corp.OTEX-T 11,958 31.0%-4.4%9.4%0.31.5 45.02 -0.8%
CCL Industries Inc. CCL.B-T 11,079 57.6%28.0%15.8%0.62.2 62.67 12.1%
Air CanadaAC-T 7,051 17.3%-90.8%18.2%0.22.7 25.82 94.0%
Brookfield Property PartnersBPY.UT-T 6,339 4.6%-67.4%4.0%0.11.1 24.86 -16.6%
Quebecor Inc.QBR.B-T 5,717 1.2%-46.2%7.7%0.41.5 24.00 20.1%
Linamar Corp.LNR-T 4,784 26.0%2.4%14.2%0.61.5 73.20 16.3%
Spin Master Corp.TOY-T 4,721 80.8%1.8%35.5%0.55.5 46.43 37.1%
Norbord Inc.OSB-T 4,590 54.2%-13.7%24.3%0.72.5 53.13 23.4%
Jean Coutu Group (PJC) Inc.PJC.A-T 4,519 68.5%26.7%14.4%0.92.3 24.60 17.3%
Canfor Corp.CFP-T 3,846 30.0%-10.2%14.5%0.81.5 29.90 61.9%
Cogeco Communications Inc.CCA-T 3,359 14.2%-66.8%11.5%0.51.9 68.14 -0.7%
Stella-Jones Inc.SJ-T 3,132 56.8%8.2%11.4%0.91.8 45.17 16.4%

Source: Inovestor

Investors are advised to do additional research before investing in any of the companies shown here.

Tiffana Paulrajah is an account executive for Inovestor Inc.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
BCE-T
BCE Inc
-1.01%46.03
TRI-T
Thomson Reuters Corp
-0.41%210.8
SLF-T
Sun Life Financial Inc
+0.15%73.91
MG-T
Magna International Inc
-0.27%73.79
FFH-T
Fairfax Financial Holdings Ltd
-0.54%1460.1
OTEX-T
Open Text Corp
-0.15%52.56
AC-T
Air Canada
-0.15%19.61
LNR-T
Linamar Corp
-0.28%72
TOY-T
Spin Master Corp
+0.06%34.66
CFP-T
Canfor Corp
-2.12%17.11
CCA-T
Cogeco Communications Inc
-0.03%60.08
SJ-T
Stella Jones Inc
+0.36%79

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe