Saxo Bank | Mar 05, 2013 05:23AM ET
We have conducted an analysis on Canadian stocks and found the 10 most attractive stocks (see table below). It might come as a surprise that no mining company made it on the list - despite their heavy presence on the Canadian stock market.
Return spread drives performance and valuation
Essentially, we were looking for companies that have a positive residual income, that is income after subtracting cost of capital. The next important criteria was that these quality companies should trade at attractive valuations relative to the return spread. This we measure by the enterprise value / total invested capital ratio, an approximation for the total value of the company (equity + net debt) relative to the capital invested (replacement cost).
Another pick is Metro, a regional food retailer that also sells pharmaceutical products from its chain of drug stores. The company operates primarily in Québec and Ontario and has a total of 564 retail stores (both supermarkets and discount stores). The retailer is printing a phenomenal ROIC of 35.4 percent and a return spread of 5.1. These strong numbers have been consistent and as a result, the stock performance has been very strong and is trading far above the highs before the financial crisis. With EV/TIC at 1.55, the valuation looks attractive for this steady growing Canadian retailer.
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