WestJet looks like one of 2016’s most likely value picks. (Machado Noa/Lightrocket/Getty)
A stock screen is a little like a GPS device. It’ll offer directions, but when what it tells you doesn’t match what you see on the road ahead, you’d best use your judgment.
If our value screen last year was the GPS, Encana Corp. was the lake, hidden in darkness and fog. The stock looked cheap, but when energy prices stayed volatile, investors should have steered clear. Even with dividends, Encana shares lost 51% over the past year. Screens have the advantage of avoiding the biases held by human stock pickers, but sometimes an active manager, like a conscientious driver, can do a better job of spotting the hazards dead ahead.
Most years, our value screen performs quite well, handily beating the market benchmark, and sometimes it does spectacularly. Stocks must pass a series of tests to make the cut. First, we limit our search to company stocks, knocking out REITs and other income trusts. Next, we look for businesses that have a price-to-earnings ratio below 15 and a price-to-book below 1.5. Furthermore, only those companies with lower P/Es and P/Bs than their sector peers make the grade. We don’t stop there. We thin the herd by keeping only those companies that have positive earnings over the past 12 months. Last, we only include companies with positive analyst consensus ratings—between Hold (2.5) and Buy (5).
If history holds true and value investors are at their best after market corrections, this could be a good time to consider some of the stocks below. Many are familiar names with solid, long-term track records that have been beaten up over the past year. One example is WestJet Airlines, which is down 24%, largely due to its exposure to Alberta. Others include broadcaster Corus Entertainment, down 24%, and auto-parts maker Martinrea International, which is off 29%.
Then there is Granite Oil, one of the few energy companies to make this list. Not only did it escape the worst of the oil and gas sell-off, but it’s bounced back faster than most of its cohort too. And it may still be a good value; just be sure to do your research before clicking the “buy” button. You want to make sure it’s heading in the right direction.
| Company | Ticker | Price- to-Book | Price-to- earnings | 1-Yr. Total Return (%) | Analyst Consensus Rating |
|---|---|---|---|---|---|
| Canfor Pulp Products Inc. | CFX | 1.5 | 7.4 | -18.7 | 4.4 |
| Corus Entertainment Inc. | CJR.B | 0.8 | 6.5 | -23.8 | 3.2 |
| Equitable Group Inc. | EQB | 1.2 | 7.5 | -2.6 | 4.3 |
| Granite Oil Corp. | GXO | 1.1 | 4.4 | 3.3 | 5 |
| High Arctic Energy Services Inc. | HWO | 1 | 6.2 | -7.2 | 5 |
| Ivanhoe Mines Ltd. | IVN | 0.6 | 1.5 | -8.9 | 4.3 |
| Martinrea International Inc. | MRE | 1 | 6.3 | -29.1 | 3.7 |
| Transcontinental Inc. | TCL.A | 1.4 | 6.7 | 5.2 | 3.3 |
| WestJet Airlines Ltd. | WJA | 1.2 | 7.7 | -24.4 | 3.4 |
| Yellow Pages Ltd. | Y | 0.7 | 7.5 | 24.1 | 4.5 |
More from the 2016 Investor 500 Market Guide:
How to position your portfolio for the rest of 2016
Risk-tolerant investors will find opportunities over the next 12 months. The rest of us should keep our heads down
Top 15 Most Profitable Companies
Top 15 Companies by Revenue
Top 15 Companies by Market Cap
Top 15 Companies by Total 5-year Return
Canada’s Top 10 Best Defensive Stocks for 2016
Canada’s Top 10 highest-yielding dividend stocks for 2016
