Methodology: 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’ve identified seven equities that are prime candidates for a reversal of fortune. They’ve posted improved profits over the past year, and their share prices have improved more than the market during the past three- and six-month periods, a sign that investors are regaining confidence in their prospects. 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’ve chosen the seven that have best demonstrated a rising share price over the past 12 months.
Why you should care: Whatever concerns existed a year ago about the effect an unsteady U.S. economy would have on Canada, the TSX bubbled happily along in 2010, a rising tide that lifted many boats. And though the overall market outlook for the year ahead is more modest, these are discounted stocks that look ready to put recent stumbles behind them and exceed their peers in the coming months.
Worth noting: Two of our picks, transportation giant Bombardier and aerospace manufacturer Héroux-Devtek, have fates that are to some degree intertwined. HRX recently secured a seven-year, $175-million components contract for the breadth of Bombardier’s commercial and business aircraft portfolio. Few analysts expect either stock to do anything less than outperform.