Michael Cloherty is senior account manager for StockPointer at Inovestor Inc.

What are we looking for?

Consumer staples stocks. One of the top performing sectors since the beginning of the year, consumer staples are characteristically seen as less sensitive to volatile markets and more defensive for investors.

We searched the Canadian consumer staples sector in StockPointer for stocks with a minimum market cap of $500-million and looked at the following metrics:

– A five-year average return on capital greater than 8.0 per cent. We calculate return on capital by dividing net operating profit after taxes by capital. We set the threshold at 8.0 per cent to increase our odds of finding wealth creators.

– The trailing 12-month return on capital for the company, to compare where they currently stand versus their five-year average.

– An economic performance index, or EPI (return on capital divided by the cost of capital) greater than 1.0. EPI helps find companies that create the highest economic profit for investors. We want a ratio higher than 1.0 because it reflects wealth creation for shareholders.

– Dividend yield. We want to see whether these companies are paying a dividend to investors. We looked at the total paid out over the last 12 months.

More about StockPointer

StockPointer is a fundamental analysis tool based on an EVA (economic value added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 6,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer (stockpointer.ca) also allows investors to create personalized filters and build custom portfolios.

What did we find?

Only nine companies meet our criteria and most of them are currently in the S&P/TSX composite index. Corby Spirit and Wine Ltd. Alimentation Couche-Tard Inc. and High Liner Foods Inc. stand out because their return on capital for the trailing 12 months is greater than their five-year average. Also, two of these three companies – Corby and High Liner – are small caps that are not part of the S&P/TSX composite.

Investors are advised to do additional research prior to investing in any of the companies mentioned.

Defensive Canadian consumer staples stocks