13 Overlooked TSX stocks that combine growth and reasonable valuations

What are we looking for?

Quality stocks with growth characteristics over the short to medium term and modest share-price appreciation.

Some companies experience gradual improvements in their fundamentals, yet their stock prices remain stagnant. However, these overlooked firms keep advancing until their stock prices can no longer ignore them because of robust fundamentals.

Emphasizing quality companies that demonstrate improving fundamentals alongside reasonable price movements is paramount for making prudent investment decisions. This strategy enables investors to position themselves for long-term success while mitigating risks associated with market volatility.

The screen

We screened Canadian companies with a market capitalization greater than $1-billion looking for:

• Stockpointer (SP) score greater than 65. The score mainly considers risk-adjusted return on capital, earnings per share (EPS) growth and free cash flow per share. The score ranges from zero to 100. The higher the value, the better the company.
• Positive one-year indicator: one-year net operating profit after taxes (NOPAT) growth minus one-year share price return. The objective is to find companies with solid results while avoiding stocks that overshoot their fundamentals.
• One-year NOPAT growth between 0 per cent and 100 per cent. We cap it at 100 per cent to prevent choosing potential outliers, such as those with weak performance a year ago or unusually robust recent results.
• Positive one-year and one-quarter EPS growth;
• Price-to-earnings (P/E) ratio lower than 20.

For informational purposes, we have also included one-year price return and dividend yield.

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What we found