What are we looking for?
Canadian listed stocks with strong momentum and growth factor ratings from a quantitative perspective.
North American equity markets have been posting some impressive short-term rebounds off hopes that interest-rate hikes are over. The TSX Composite Index has rallied approximately 4.5 per cent off its Oct. 27 low. I was curious which stocks look strong using a quantitative factor investing methodology.
The screen
We began by screening for North American listed stocks with a market capitalization of at least $1-billion to prioritize larger, more liquid and less volatile companies.
Next, we added a filter to search for U.S. stocks with the highest growth and momentum factor ratings, which are derived from Trading Central’s Quantamental Rating.
Growth factor investing is an investment strategy that focuses on selecting stocks or assets from companies that are expected to have above-average earnings or revenue growth compared to the broader market.
Momentum factor investing involves selecting stocks based on their recent price performance, aiming to capitalize on the tendency of assets that have exhibited strong recent performance to continue to do well in the short to medium term. The momentum factor looks for companies indicating strong upward price momentum over three and six months. We set a minimum factor rating of 50 out of 100.
For informational purposes, we have also included YTD and one-year price performance, the recent stock price, price/earnings, and dividend yield.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is Fairfax Financial Holdings FFH-T, a financial services holding company based in Toronto, well-known for its diversified investment portfolio, which includes insurance and reinsurance companies. The stock has the highest market cap on our list at $30.6-billion and the lowest P/E on our list at just 8.33, which is below the 9.17 average for the S&P/TSX Composite Insurance Industry Group Index. The stock has the highest TC momentum factor score on our list at 92 out of 100, which is very strong. The TC growth factor rating is 87 out of 100, which is also very strong. The stock has the best YTD and one-year performance on our list at an impressive 44.7 and 73.2 per cent respectively, reaching a new record-high at the time of this writing.
Definity Financial Corporation DFY-T, a property and casualty insurance provider, has the highest TC growth factor rating on our list at 91 out of 100. The growth factor takes into account the year-over-year change in price/earnings, earnings-per-share growth and revenue growth.
Trading Central Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described has a 5-per-cent annualized total return over five years compared to 5 per cent for the S&P/TSX 60 Composite Index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
Gary Christie