(List compiled by Andrew Dominguez. Data sourced from Finviz.)
In a letter published on TheStockAdvisors, J Royden Ward of the “Cabot Benjamin Graham Value Letter” recommends six undervalued Canadian stocks: CNI, GIL, MGA, POT, SLW and THI.
He writes that these companies have “rapidly growing earnings and strong balance sheets,” and “offer excellent appreciation potential during the next six to 12 months.”
Ward calls these stocks “Ben Graham-style values.” Here is a quick explanation of what he means:
Benjamin Graham, a former mentor of Warren Buffett and the so-called “Godfather” of value investing, developed a calculation for the fair-value price of a stock based on its earnings per share (EPS) and book value per share (the value of the company’s assets divided by the number of shares).
The Graham Number = Square Root of (22.5) x (TTM EPS) x (MRQ Book Value per Share).
The number is the theoretically the highest price a value investor should pay for a stock. It is used to screen for potentially undervalued stocks by focusing on companies with strong earnings and book value (what Ward refers to as “strong balance sheets”).
In his letter, Ward highlights the investments the companies have made that should improve their earnings, including expansion (ie, for GIL, expanding manufacturing in Mexico and Asia). Ward also focuses on positive dividend yields and encouraging Price-Earnings (P/E) valuations (forward 12-months EPS).
Interested in digging deeper into Ward’s recommendations? Start by analysing the stocks with Kapitall’s tools (see list below).
analyse These Ideas (Tools Will Open In A New Window)
List sorted alphabetically.
1. Canadian National Railway Company (CNI): Railroads industry with a market cap of $35.85B. Its network of approximately 20,600 route miles spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert (British Columbia), Montreal, Halifax, New Orleans and Mobile (Alabama). Its network also inlcudes metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth (Minnesota)/Superior (Wisconsin), Green Bay (Wisconsin), Minneapolis/St. Paul, Memphis and Jackson (Mississippi), with connections to all points in North America. It generates revenue from products, such as petroleum and chemicals, metals and minerals, forest products, coal, grain and fertilizers, intermodal, and automotive.
2. Gildan Activewear Inc. (GIL): Apparel Clothing Textile industry with a market cap of $3.94B. It is a marketer and vertically-integrated global manufacturer of basic, non-fashion apparel products for customers. It sells active wear products to screen print markets in North America, Europe and other international markets. It sells socks and underwear, in addition to its active wear products, to mass market and regional retailers in North America.
3. Magna International, Inc. (MGA): Auto Parts industry with a market cap of $12.44B. It designs, develops and manufactures technologically advanced automotive systems, assemblies, modules and components, and engineers and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks. Its capabilities include interior systems, seating systems, closure systems, body and chassis systems, vision systems, electronic systems, exterior systems, roof systems, powertrain systems, vehicle engineering and contract assembly and hybrid and electric vehicles/systems.
4. Potash Corp. of Saskatchewan, Inc. (POT): Agricultural Chemicals industry with a market cap of $52.89B. It is an integrated fertiliser and related industrial and feed products company. It owns and operates five potash mines in Saskatchewan and one in New Brunswick. Its phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers; animal feed supplements and industrial acid, which is used in food products and industrial processes. Its nitrogen operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid.
5. Silver Wheaton Corp. (SLW): Silver industry with a market cap of $13.75B. It is a mining company that generates its revenue primarily from the sale of silver. It operates in nine business segments: the silver produced by the San Dimas, Zinkgruvan, Yauliyacu, Penasquito, Cozamin, Barrick and Other mines, the gold produced by the Minto mine and corporate operations.
6. Tim Hortons Inc. (THI): Restaurants industry with a market cap of $7.74B. It is a quick service restaurant chain in North America. Its offerings include premium coffee, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including its trademark doughnuts. Its business model also includes vertically integrated businesses, including warehouse and distribution operations that supply goods to its Canadian restaurants. As of January 2, 2011, the Company and its restaurant owners operated 3,148 restaurants in Canada (99.5% franchised) and 602 restaurants in the United States (99.3% franchised) under the name Tim Hortons. In addition, the Company had 275 primarily self-serve licensed locations in the Republic of Ireland and the United Kingdom as of January 2, 2011.
Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.