Screening for strength in the face of adversity

The Globe and Mail, Number Cruncher

By Peter Ashton

Friday, March 30th 2018

In The Globe and Mail, Peter Ashton uses Strategy Builder to find Canadian stocks showing strength in the face of the recent market downturn. 

What are we 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 Com-posite 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 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 overall 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.

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.

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 more than 10 per cent in the past 13 weeks and is up more than 40 per cent in the past year.

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.