The Globe and Mail attempts to identify steady Canadian companies
showing consistent returns on
equity in its Friday, July 3, edition. The Globe's Ian Tam writes in the Number Cruncher column that he looked for companies
showing positive trends in return on equity -- and have also had a consistently
positive ROE over five-year and 10-year periods. As an added metric
to find predictable companies,
Mr. Tam also used the Morningstar
CPMS earnings-variability metric
that looks at the historical volatility
of a company's earnings.
Companies with lower earnings
variability have had consistent
earnings over time.
The strategy ranks stocks on
the best combination of the following
metrics:
quarterly ROE momentum
(trailing four quarters ROE versus
the same number, one quarter
ago);
trailing price-to-earnings (P/E)
multiple; and earnings variability.
Qualifying stocks have a trailing
P/E less than 18 times, a five-year
average ROE greater than 6
per cent, a 10-year average ROE
greater than 9 per cent and a
market cap greater than $400-million. Firms with consistent ROE are Great-West Lifeco, WestJet Airlines, IGM Financial, Equitable Group, Metro and Telus.
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