The Canadian GARP stocks we’ve discovered have earnings momentum but are reasonably priced compared with their peers
SmallCapPower | July 2, 2020: Growth at a Reasonable Price, or GARP, has been a solid strategy historically for those investors with a longer-term time horizon. Today, we have sifted through and found three Canadian stocks with quarterly earnings momentum that are trading at, or below, their peers on at least one of these valuation metrics: price-to-book, price-to-earnings, price-to-cash flow and price-to-sales.
*Returns are based on closing stock prices as of June 30, 2020
Enghouse Systems Limited (TSX:ENGH) – $72.50
Enghouse Systems provides enterprise software solutions and has grown through a ‘roll-up’ strategy, typically spending between $20 million to $40 million a year on acquisitions of good-quality software assets at bargain prices, which are used in contact centres, telecommunication networks, transportation systems and for video conferencing. On June 4, 2020, Enghouse reported better-than-expected Q2 2020 revenue of $140.9-million, up 58% year over year, while net earnings per share of $0.49 also surpassed expectations, surging 64% from a year earlier. Driving second-quarter results was its video conferencing division, Vidyo Inc, which enables healthcare organizations, mostly in the United States, to hold video appointments with patients over the Internet, as well as allowing banks to meet virtually with customers. ENGH stock has a current dividend yield of 0.8% and the Company has increased its dividend for 12 straight years.
- One-Year Return: 110%
Constellation Software Inc. (TSX:CSU) – $1532.89
Constellation Software develops and sells software solutions that are targeted to customers in specific vertical markets. The Company’s segments include: Public sector and Private sector. The Public sector segment develops and distributes software solutions primarily to government and government-related customers. Its Public sector segment includes Volaris Operating Group, Harris Operating Group and Total Specific Solutions Operating Group. The Private sector segment develops and distributes software solutions primarily to commercial customers. Its Private sector segment includes Jonas Operating Group, Perseus Operating Group and Vela Operating Group. Constellation Software has more than 200 operating units, which compete in over 80 vertical markets. Constellation is an active acquirer, typically completing 40+ acquisitions each year.
- One-Year Return: 26%
Canadian National Railway Company (TSX:CNR) – $120.11
Canadian National Railway has a network of rail tracks that spans Canada from coast to coast and extends through Chicago to the Gulf of Mexico. In 2019, CN delivered almost 6 million carloads over its 19,600 miles of track. CN generated 2019 revenue that rose 4% year over year to $14.9 billion. Canadian National Railway has increased its dividend every year since the Company’s IPO in 1995, with a 7% hike planned for 2020. CNR stock has a current dividend yield of 1.9%.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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