In Canada, our preference is towards financials, energy and communication services.
No matter the metric, equity market valuations in the United States remain elevated. It does not matter if investors look at prices relative to earnings (trailing, forward or the Shiller cyclically adjusted price-to-earnings ratio), cash flows, free cash flow, EBITDA or just about any other indicator they can think of, the message remains the same. Indeed, as per our Strategizer publication, the valuations category is by far the least favourable component of our U.S. equity model.
As a result, it was no surprise to us that running a screen on the return of capital to shareholders (both buybacks and dividends, a.k.a. the “all-in” yield) for U.S. and Canadian equities produced a similar conclusion. Looking at the accompanying table, it is clear just how cheap Canadian stocks are relative to their U.S. peers: the TSX offers a more attractive 3.9-per-cent all-in yield (and a less elevated 44th percentile reading relative to its history) compared to 2.9 per cent (93rd percentile) for the S&P 500.