Canadian-listed stocks that align with the principles of James O’Shaughnessy’s “trending value” strategy.
Today, we are leveraging pioneering investor and author James O’Shaughnessy’s renowned “trending value” strategy which uses an evidence-based approach to quantitative investing to uncover stocks that combine the best of value and momentum investing. This approach identifies companies trading at attractive valuations while exhibiting strong upward price trends, capturing opportunities where the market begins to recognize a stock’s potential. By blending value metrics with momentum indicators, this strategy aims to pinpoint stocks poised for sustained growth. Our screen focuses on these criteria to help investors find undervalued gems with the momentum to outperform.
We began by setting a minimum market capitalization threshold of $1-billion to ensure a focus on more stable, established companies with reduced volatility compared with smaller-cap stocks.
Next, our criteria focused on companies with a TC Momentum Factor Rating of at least 50 out of 100, ensuring strong price momentum. The momentum factor refers to the tendency of winning stocks to continue performing well in the near term and takes into consideration three-month and 12-month price momentum and is used in Trading Central’s overall quantamental rating.
To target companies with attractive valuations, we included stocks with a P/E ratio for the trailing 12 months below the P/E of the S&P/TSX 60 index, which stands at around 19.66.
Further, we narrowed our search to stocks demonstrating historical five-year EPS growth of at least 10 per cent and a dividend yield of 2 per cent or higher to ensure a balance of growth and income.
We have also included year-to-date, and one-year price performance for reference.
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener is available through leading retail brokers in Canada and worldwide.
Suncor Energy Inc. tops this list, bolstered by its position as the largest-market-cap company at $69.25-billion among the screened stocks, reflecting its dominance and stability in the oil and gas sector. Its P/E ratio of 8.86 indicates attractive valuation relative to its earnings, while its momentum factor rating of 69 highlights strong price performance. With a one-year performance of 27 per cent and a five-year EPS growth of 25.54 per cent, Suncor demonstrates consistent growth and resilience. Additionally, its dividend yield of 4.14 per cent provides solid returns for income-focused investors, making it a standout choice on this list of value and momentum-driven stocks.
Another interesting stock on the list is ARC Resources Ltd., a leading Canadian energy company focused on natural gas and oil development. The company combines an attractive P/E ratio of 13.13 with a robust five-year EPS growth of 34.18 per cent, indicating it is not only reasonably valued relative to its earnings but also demonstrates strong long-term profitability growth. Its performance is further supported by a one-year return of 33.6 per cent, highlighting its momentum within the oil and gas sector.
National Bank of Canada has the highest momentum factor rating on our list at 98, reflecting exceptional price performance. The stock has an attractive P/E ratio of 12.38. Its five-year EPS growth of 10.99 per cent demonstrates consistent profitability, while its one-year performance of 30.8 per cent highlights its ability to generate strong returns for investors. Additionally, with a dividend yield of 3.45 per cent, it offers a steady income stream, making it an attractive choice for those seeking a momentum-driven stock with reliable fundamentals.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of investing in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
