Some investors, such as Warren Buffett, are famous for their ability to buy at the right time, even if the market is bearish on a company or industry (or has forgotten about it altogether). Such turnaround candidates tend to be discounted stocks that appear ready to put recent stumbles behind them and exceed their peers in the coming months. Inspired by the strategies of esteemed U.S. fund manager Jim O’Shaughnessy—whose RBC O’Shaughnessy Canadian Equity Fund, among others, is managed using an entirely quantitative approach to stock picking—we have identified 10 equities that are prime candidates for a reversal of fortune. They have posted improved profits over the past year, and their share prices has risen more than the market during the past three- and six-month periods—a sign that investors are regaining confidence in their prospects.
All our picks boast market caps in excess of $200 million, and price-to-sales ratios of 1.5 or less, suggesting potential undervaluation. Of the stocks that meet all these criteria, we have chosen the 10 that have best demonstrated a rising share price over the past 12 months.
A few of the companies on our list have already improved their performance drastically. Thanks to increasing demand for its plastic packaging, for example, manufacturer Winpak reported a 15.4% rise in profits in the first quarter. Others, like Bird Construction, had a rough start to fiscal 2011, but are getting back on track. Bird is doing that through new acquisitions and taking advantage of improving market conditions. (The company also boosted its monthly dividend by 9%). Now, all analysts rate the stock a Buy.
Methanex is also counting on an improving economic climate to raise its earnings this year. Over the next few years, the world’s largest supplier of methanol, a key ingredient in industrial production, expects growing global demand to exceed available capacity. Plus, the company boosted its quarterly dividend by 9%.
Canadian Business prides itself in delivering the best investment information to our readers every year in the form of our Investor 500. This year the I-500 is available as an e-book for $3.99. In addition to our investment screens, stories and data-jammed tables, we are rating every single stock in the I-500 universe. Plus, we have chosen 20 stocks based on exclusive criteria that are rated tops in both momentum and value. We hope you find this year’s Investor 500 both interesting and profitable.
Click here for the Investor 500