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5 Canadian Stocks to Consider as USMCA Trade Deal Clears Another Hurdle

On Tuesday, the House Ways and Means Committee cleared the way for the United States-Mexico-Canada Agreement to be voted on in the full chamber later this week.

If ratified, the deal, which is intended to replace the 1994 accord called NAFTA, would boost the U.S.'s access to the Canadian dairy market, tighten restrictions for rules of origin for auto parts as well as update digital and intellectual property provisions. The sectors that are expected to benefit include agriculture, technology and manufacturing, among others.


After it is approved by the House of Representatives, the agreement will then be passed to the Senate, which will vote for ratification in 2020.

As such, investors may be interested in profitable Canadian companies operating in the industrials sector. The GuruFocus All-in-One Screener, a Premium GuruFocus feature, searched for companies that had financial strength and profitability scores of at least five and business predictability ratings of at least two out of five stars.

Stocks that met these criteria as of Dec. 18 were Badger Daylighting Ltd. (TSX:BAD), People Corp. (TSXV:PEO), Savaria Corp. (TSX:SIS), Waste Connections Inc. (NYSE:WCN) and WestJet Airlines Ltd. (TSX:WJA).

Badger Daylighting

The Calgary, Alberta-based environmental services company, which specializes in soil excavation, has a market cap of 1.28 billion Canadian dollars ($975.4 million); its shares closed at CA$36.49 on Tuesday with a price-earnings ratio of 19.72, a price-book ratio of 3.82 and a price-sales ratio of 1.97.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

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GuruFocus rated Badger Daylighting's financial strength 6 out of 10, driven by comfortable interest coverage. The Altman Z-Score of 4.45 also indicates the company is in good standing financially.

The company's profitability fared even better, scoring a 9 out of 10 rating. Although the operating margin is in decline, it still outperforms a majority of its competitors. In addition, Badger is supported by strong returns, a moderate Piotroski F-Score of 5, which suggests operations are stable, and consistent earnings and revenue growth. It also has a perfect business predictability rank of five out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 12.1% per annum over a 10-year period.

No gurus currently have positions in the stock.

People Corp.

The company, which is headquartered in Winnipeg, Manitoba, provides group benefits, group retirement and human resource services. It has a CA$630.02 million market cap; its shares closed at CA$9.25 on Tuesday with a price-book ratio of 4.33 and a price-sales ratio of 3.46.

According to the median price-sales chart, the stock is overvalued.

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People's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately CA$22.72 million in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.4, however, indicates the company is under some financial pressure.

The company's profitability scored a 7 out of 10 rating on the back of operating margin expansion and steady earnings and revenue growth. People also has negative returns that underperform a majority of industry peers and a low Piotroski F-Score of 3, which suggests poor business conditions. It also has a 3.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 9.3% per year.

The Mawer New Canada Fund (Trades, Portfolio) is the company's largest guru shareholder with 3.8% of its outstanding shares.

Savaria

The Canadian company, which manufactures wheelchair lifts, stairlifts, home elevators and accessible vans, has a market cap of CA$710.05 million; its shares closed at CA$14.07 on Tuesday with a price-earnings ratio of 30.59, a price-book ratio of 2.64 and a price-sales ratio of 1.8.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated Savaria's financial strength 6 out of 10. While the company has issued approximately CA$24.66 million in new long-term debt over the past three years, it is at an acceptable level due to adequate interest coverage. In addition, the Altman Z-Score of 3.68 suggests it is in good financial health.

The company's profitability fared even better, scoring a 9 out of 10 rating on the back of operating margin expansion and strong margins that outperform a majority of competitors. It is also supported by a moderate Piotroski F-Score of 5, steady earnings and revenue growth and a four-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 9.8% per year.

Mawer's New Canada Fund has a 3.29% stake in the company.

Waste Connections

The Vaughan, Ontario-based waste management company has a $23.68 billion market cap; its shares were trading at $90.09 on Wednesday with a price-earnings ratio of 41.96, a price-book ratio of 3.49 and a price-sales ratio of 4.49.

The Peter Lynch chart suggests the stock is overvalued.

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Waste Connections' financial strength was rated 5 out of 10 by GuruFocus. In addition to sufficient interest coverage, the Altman Z-Score of 3.1 indicates the company is in good financial standing.

Although the operating margin is in decline, the company's profitability scored an 8 out of 10 rating. Waste Connections is also supported by strong returns that outperform a majority of industry peers, consistent earnings and revenue growth and a moderate Piotroski F-Score of 4. It also has a 3.5-star business predictability rank.

Of the gurus invested in Waste Connections, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest position with 0.91% of outstanding shares. Ron Baron (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) are also shareholders.

WestJet Airlines

The Canadian airline has a market cap of CA$3.59 billion; its shares closed at CA$30.99 on Tuesday with a price-earnings ratio of 17.03, a price-book ratio of 1.49 and a price-sales ratio of 0.71.

According to the Peter Lynch chart, the stock is overvalued.

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GuruFocus rated WestJet's financial strength 5 out of 10 on the back of low interest coverage. In addition, the Altman Z-Score of 1.46 warns the company could be at risk of going bankrupt.

The company's profitability fared better, scoring an 8 out of 10 rating despite the operating margin declining. WestJet is also being weighed down by returns that underperform over half of its competitors, but it has a moderate Piotroski F-Score of 6 and has recorded steady earnings and revenue growth. Regardless, its three-star business predictability rank is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 8.2% per year.

No gurus currently hold the stock.

Disclosure: No positions.

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This article first appeared on GuruFocus.