Globe says Capital, others cheap with good outlooks
2012-02-29 09:12 ET - In the News
See In the News (C-CPX) Capital Power Corp
The Globe and Mail attempts to identify cheap stocks with improving earnings estimates in its Wednesday edition. The Globe's Ian McGugan writes in the Number Cruncher column that many value investors snap up stocks selling at low prices compared with their book values on the theory that these cheap shares will produce superior returns over time. However, the more you examine the evidence for this strategy, the more mixed the results appear to be. Mr. McGugan had CPMS consultant Craig McGee crunch the numbers to see how an investor would have done buying the 25 stocks with the lowest price-to-book values on the TSX, refreshing the mix every three months. Results were disappointing, generatiing an annualized return of only 1.6 per cent since 1986. Then Mr. McGee looked at how an investor would have done by buying the lowest P/B stocks that also had positive changes in consensus earnings estimates over the previous three months. The revised strategy performed much better, producing an annualized return of 15.2 per cent since 1986. Stocks on Mr. McGugan's recommended list are Capital Power, Petrobank Energy & Resources, PetroBakken Energy, Penn West Petroleum, Artis Real Estate Investment Trust and Linamar.