Canada’s Top 10 best value stocks for 2015

Cheap but profitable stocks underperformed in 2014 after a standout 2013. Are they due for a comeback?

 
oil derricks

Depressed oil prices have pushed some otherwise healthy energy companies into the bargain bin. (Paul Edmonson/Getty)

The concept behind the reality show Storage Wars is pretty simple: A gaggle of treasure seekers is given a moment to look around an abandoned storage locker, and then they try to outbid one another for its contents. Those who do well can separate the gems from the junk in the blink of an eye. Value hunters operate in a similar fashion on the stock market. The major difference is they spend considerably more time checking out a potential investment.

For value investors, that research is key. Stocks can look cheap for any number of reasons (bad management, for example), but only a few will offer good value for your money. To identify the top value companies, we limit our search to company stocks, eliminating REITs and other trusts. Next we look for companies that have price-to-earnings ratios below 15 and price-to-book values below 1.5. To cut our list down even further, we include only those companies with positive analyst consensus ratings—between Hold (2.5) and Buy (5). We leave out companies that were tracked by fewer than two analysts to ensure the rating reflects more than one opinion. Lastly, we discard companies that have reported negative earnings over the previous 12 months, since value investors are only interested in money-making businesses.

Sometimes, despite the value hunter’s best efforts, there aren’t any treasures in the locker. Our picks from last year produced a meagre 5% average total return—a disappointing result after the 50% return this screen generated for us the previous year—but it was hardly a writeoff. The top-performing company was Rio Alto Mining, which was taken over earlier this year by Tahoe Resources.

Laurentian Bank is the lone company making a return appearance on the value list. Laurentian stands out among Canadian financial stocks for having one of the lowest price-to-earnings ratios in the space. Rather than try to be everything to everyone, Laurentian targets niches like business-to-business. Considering the bank just named François Desjardins, who currently heads up its B2B team, as the next CEO, expect that to be a core area of focus.

Several resource companies also find their way onto this screen, including once-mighty Encana Corp. Encana took another hit last year when energy prices fell, so it has some room to make up. Shares are down 30% over the past 12 months, but they’ve stabilized recently; plus, it has the lowest price-to-earnings ratio on our value screen. Value investors might be kicking the tires on this one.

The top 10 best value stocks

CompanyTickerPrice-
to-
book
Price-
to-
earnings
1-year
total
return
(%)
Analyst
consensus
rating*
Bankers Petroleum Ltd.BNK1.18.3-39.84.9
Encana Corp.ECA1.14.9-30.73.9
Genworth MI Canada Inc.MIC0.98.8-7.43.8
High Arctic Energy Services Inc.HWO1.47.8-18.35
Laurentian Bank of CanadaLB19.47.62.8
Mainstreet Equity Corp.MEQ0.76.31.64.3
RMP Energy Inc.RMP1.18.6-61.94.4
Rocky Mountain Dealerships Inc. RME1.19.4-9.43.4
Sierra Metals Inc.SMT15.8-11.34.5
Teranga Gold Corp.TGZ0.86.1-1.44.1
*2.5 = hold; 5 = buy

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