Best Canadian Stocks 2019: Hall of Heroes

These stocks have the best growth and value characteristics

Our Hero stocks earned at least one A and one B on our value and growth tests. This year a total of 19 firms made it into the Hall of Heroes. A special prize goes to the only stock to earn an A for value and an A for growth this year. (Want to read more about how we selected this year’s Heroes? Click here.)

The Double-A Hero

Husky Energy (HSE) got the double-A prize this year. The Calgary-based oil company trades at 0.9 times tangible book value and 8.5 times earnings. It pays a 3.1% yield and has grown over the last three years. Mind you, oil prices dipped recently and industry analysts expect the firm’s earnings to slip next year, which explains why it trades at 10.1 times forward earnings. If oil prices remain depressed for a prolonged period, Husky could struggle. On the other hand, it should do well in more bullish scenarios.

The Value Heroes

The 10 stocks on the value side of the Hero roster earned As for value and Bs for growth. Seven of the 10 were insurance companies or miners this year.

Fairfax Financial (FFH) is the largest insurance company on the list with a market capitalization of $18 billion but it is more of an insurance-based conglomerate. It’s run by CEO Prem Watsa who operates the Toronto-based company in a manner similar to Warren Buffett’s Berkshire Hathaway. Fairfax trades at book value and 7.5 times earnings. It’s well worth a second look.

E-L Financial (ELF) is another insurance-based conglomerate based in Toronto. The firm is a little less active than Fairfax, but it trades at a 40% discount to its net asset value and at just 5.9 times earnings. However, its stock is thinly traded and particular care is needed when buying or selling it.

The next two insurance firms got top markets both this year and last. Genworth MI Canada (MIC) provides residential mortgage insurance and makes its home in Oakville, Ontario. It trades near book value and pays a 4.7% yield. The firm might fare poorly during a real estate crash, but it could also do well in less apocalyptic scenarios. The second of the two is Industrial Alliance Insurance (IAG), which offers life and health insurance from its base in Quebec City. It trades near book value, at 8.8 times earnings, and pays a 3.4% yield.

Mining firms Teck Resources (TECK.B), Lundin Mining (LUN), and Hudbay Minerals (HBM) all got the nod this year, which is a little unusual because mining firms rarely make the grade.

Hudbay Minerals is a large mining concern headquartered in Toronto with operations across the Americas. It digs up copper, precious metals, and zinc while trading for 56% of book value and 6.6 times earnings. It’s looks cheap, but it also took investors on a wild ride over the last year.

While Lundin Mining has been on a downtrend in recent months, the base-metals miner trades at 9.6 times earnings and 78% of book value. If the economy picks up, the Toronto-based firm could do quite well.

Teck Resources is by far the largest miner of the bunch with a market capitalization of almost $16 billion. While the Vancouver-based firm’s shares held up reasonably well over the last year, the diversified miner trades at 7.0 times forward earnings and 70% of book value.

Cervus Equipment (CERV) is an equipment dealer with operations in Canada, Australia, and New Zealand that sells to agricultural, transportation, and industrial firms. The Calgary-based company is the smallest Hero of the year with a market capitalization of $215 million. It’s also the cheapest relative to sales with a price-to-sales ratio of just 0.16.

Hardwoods Distribution (HDI) does just that. The firm based in Langley, BC sells building products across the U.S. and Canada. It’s the second smallest Hero with a market capitalization of $258 million. But it trades at 8.3 times earnings and near book value. The U.S. housing market is still recovering from the 2008 crash. If the sector continues to grow, Hardwoods should be a beneficiary.

The last member of the value roster is Linamar (LNR). It’s an auto-parts company that makes its home in Guelph, Ontario. Trade disputes haven’t helped the firm over the last year. But its stock trades at 0.9 times book value and at 5.1 times forward earnings. It’ll hopefully rev up next year.

The Growth Heroes

The eight stocks on the growth side of the Hall of Heroes earned As for growth and Bs for value. They were led by bank stocks.

The Bank of Montreal (BMO) and CIBC (CM) made the grade for the big Canadian banks this year. The former is based in Montreal, offers a yield of 4.0%, and trades at 10.1 times forward earnings. The later hails from Toronto, pays a 4.9% yield, and trades at 9.0 times forward earnings. Equitable Group (EQB), a much smaller Canadian bank, also made it into the Hall of Heroes. The Toronto-based firm trades near book value and at 6.2 times forward earnings. But it pays a relatively paltry yield of 1.7%. If the economy doesn’t stumble, they should all do well.

Imperial Oil (IMO) is a large integrated oil company based in Calgary that is largely owned by Exxon Mobil (XOM). Imperial grew its earnings over the last three years with an annual earnings-per-share growth rate of 7.5%. It also trades at 11.5 times forward earnings. With a little luck, oil prices take a turn for the better and buoy the firm’s performance.

Metro (MRU) is a food retailer that makes its home in Montreal. The company operates more than 600 food stores and uses some of its profits to pay a dividend yield of 1.7%. Income investors will note that Metro has grown its dividend by 17% per year on average over the last five years.

TFI International (TFII) is a Montreal-based trucking firm, which operates across North America. The company trades at 11.4 times earnings and sports a three-year earnings-per-share growth rate of 32%.

Telus (T) made it into the growth team this year, but just barely. The Vancouver-based telecom company offers a 17% return on equity, a 4.7% yield, and industry analysts expect its earnings to grow over the next five years.

Montreal-based engineering firm WSP Global (WSP) is the last Hero of the year. It also happens to be a returning Hero from last year and proved to be a big winner with a capital gain of 21%. The firm operates out of 550 offices across the world and will hopefully continue its winning ways.

A Caveat

Before dashing off buy any stock it is important to understand the risks involved. While we believe our Hero stocks have the ingredients necessary for success, the future is far from certain and some will inevitably tun into trouble. There will also be periods – like the crash of 2008 – when stocks generally do poorly. There are no guarantees when it comes to the stock market.

It is important to do your own due diligence. Make sure a company’s situation hasn’t changed in some substantial way. Read the latest press releases and regulatory filings. Study media stories and get up to speed on all the recent developments. Take particular care when buying or selling smaller stocks and those that trade infrequently. If you take a cautious approach to the market, you’ll be more likely to enjoy what it has to offer.

If you haven’t already, find out how we selected the heroes and then take a look at the giant table that contains data on each of the largest 200 stocks in the land.

Name Ticker Industry Group Industry Subgroup Price (Nov 20, 2018) Revenue ($M) Market Capitalization ($M) Price/Book Price/TangibleBook P/E (Last 12 Months) Forward P/E Dividend Yield Leverage (Assets/Equity) Value Grade 1Yr Total Return (%) 3 Yr EPS Growth (%)
Bank of Montreal BMO Banks Commer Banks Non-US $96.82 $30,800 $61,997 1.5 1.9 13.0 10.1 4.0% 17.1 B 1.5% 4.0%
Cervus Equipment CERV Retail Retail-Gardening Prod $13.68 $1,323 $215 0.9 1.2 8.4 7.8 2.9% 2.3 A -7.5% 42.8%
CIBC CM Banks Commer Banks Non-US $112.25 $24,255 $49,659 1.6 2.0 9.8 8.9 4.8% 17.2 B 2.0% 8.9%
E-L Financial ELF Insurance Multi-line Insurance $813.00 $1,985 $3,268 0.6 - 5.9 - 0.6% 3.3 A 1.4% 1.3%
Equitable Group EQB Diversified Finan Serv Finance-Mtge Loan/Banker $67.26 $832 $1,113 0.9 0.9 6.9 6.2 1.7% 18.4 B 7.1% 7.6%
Fairfax Financial FFH Insurance Reinsurance $604.10 $25,059 $17,711 1.0 1.9 7.5 10.1 2.1% 3.6 A -10.0% 36.4%
Genworth MI Canada MIC Insurance Financial Guarantee Ins $43.53 $921 $3,863 1.0 1.0 7.8 8.4 4.7% 1.7 A 5.0% 9.2%
Hardwoods Distribution HDI Distribution/Wholesale Distribution/Wholesale $12.00 $1,107 $258 1.0 1.3 8.3 7.3 2.7% 1.7 A -37.9% 6.3%
Hudbay Minerals HBM Mining Metal-Copper $6.28 $2,035 $1,641 0.6 0.6 6.6 13.0 0.3% 2.1 A -35.1% 36.4%
Husky Energy HSE Oil&Gas Oil Comp-Integrated $15.93 $22,165 $16,012 0.9 0.9 8.5 10.1 3.1% 1.8 A 4.2% 35.4%
Imperial Oil IMO Oil&Gas Oil Comp-Integrated $39.69 $33,529 $31,462 1.3 1.4 24.2 11.5 1.9% 1.7 B 2.4% 7.5%
Industrial Alliance Insurance IAG Insurance Life/Health Insurance $48.38 $11,005 $5,305 1.0 1.5 8.8 8.2 3.4% 11.2 A -16.9% 15.3%
Linamar Corp LNR Auto Parts&Equipment Auto/Trk Prts&Equip-Orig $49.39 $7,463 $3,228 0.9 1.8 5.4 5.1 1.0% 2.2 A -25.6% 11.2%
Lundin Mining LUN Mining Diversified Minerals $5.22 $2,454 $3,829 0.8 0.8 9.6 12.0 2.3% 1.5 A -41.4% 44.2%
Metro MRU Food Food-Retail $42.82 $14,383 $10,973 2.0 - 5.8 14.6 1.7% 2.0 B 5.5% 51.0%
Teck Resources TECK.B Mining Diversified Minerals $27.24 $12,524 $15,674 0.7 0.7 4.6 7.0 0.7% 1.7 A -1.8% 50.2%
TELUS T Telecommunications Telecom Services $46.83 $14,071 $28,014 2.8 - 18.3 15.4 4.7% 3.2 B 0.4% 3.8%
TFI International TFII Transportation Transport-Services $43.17 $4,984 $3,798 2.5 - 11.4 11.8 2.2% 2.5 B 37.9% 32.2%
WSP Global WSP Engineering&Construction Engineering/R&D Services $63.97 $7,819 $6,661 2.1 - 28.3 17.0 2.3% 2.1 B 12.9% 2.6%

Norm Rothery, CFA, PhD, tweets as @NormanRothery. He may hold some of the securities mentioned in this article. Be sure to read all of the sections of this feature before investing.