What are looking for?
Canadian stocks showing strength in the face of the recent market downturn.
Since the end of January, stock markets have been extremely volatile with the S&P/TSX Composite Index, S&P 500 and Dow Jones Industrial Average down between 5 per cent and 9 per cent. Some well-known stocks such as General Electric Co. and Facebook Inc. are each down more than 15 per cent in this period. However, some stocks have bucked the downward market trend and have managed to hold their own, and even rally amid the tumult.
The screen
We will be using Recognia Strategy Builder to search for Canadian stocks that have demonstrated strength and low volatility in the face of the recent market turbulence.
We begin by setting a minimum market-cap threshold of $3-billion. This will focus our search on mid- to large-cap Canadian stocks and avoid smaller companies with less stable streams of revenue. We will also limit our search to stocks currently trading within 8 per cent of their 52-week highs and with stock prices that are up over all in the past quarter.
Finally, to select stocks with lower-than-average volatility, we will filter using beta. We will select stocks with beta of between 0.75 and minus 0.75. Beta measures the price correlation of a security compared with the entire market. Stocks with beta in this range exhibit a smaller correlation to overall market moves.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Husky Energy Inc. tops our list with a $17-billion market cap and beta of 0.63. While many Canadian energy producers sold off in early February, Husky declined less than many of its peers and went on to rally strongly off its lows. The stock is now trading just 7.6 per cent off its 52-week high set in January and is up 1.4 per cent in the past quarter.
The least volatile stock on our list (having a beta closest to zero) is TMX Group Ltd. with a beta of minus 0.08. Unlike most of the Canadian market, TMX Group has put in a strong performance in 2018, up 5.6 per cent in the past quarter and now trading just 6.8 per cent off its January highs. Unlike most of the rest of the Canadian market, TMX Group has put in a strong performance in 2018, up 5.6 per cent in the past quarter and now trading just 6.8 per cent off its January highs.
The best 13-week stock performance on our list belongs to specialty-foods manufacturer Premium Brands Holdings Corp., which produces and distributes food under a variety of brands. The company’s stock is up over 10 per cent in the past 13 weeks and is up over 40 per cent in the past year.
Historical performance
Recognia Strategy Builder provides a back-testing 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 had a 13.3-per-cent annualized return compared with 4.2 per cent for the S&P/TSX 60 Index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of customer success at Trading Central.
Peter Ashton