Toronto Stock Exchange building

The Toronto Stock Exchange (TSX) has launched a new stock group known as the TSX30. The TSX30 recognizes the 30 top-performing TSX stocks over a three-year period based on dividend-adjusted share price appreciation between June 2016 and June 2019.

To qualify, companies needed a minimum market cap of at least $50 million with a closing dividend-adjusted share price of at least 0.50 cents as of June 30, 2019. Just under 600 stocks qualified. Of the TSX30 companies, the smallest market capitalization is $250-million, and the largest is $39 billion. Together, these companies created more than $116 billion of market cap in the past three years. Amazing!

There’s a lot we can learn from a study of these 30 stocks and VectorVest has added the TSX30 to our WatchLists in a folder titled, TSX.

First, the TSX30 is comprised of small and mid-caps companies, several which have not been on the radar for many investors despite impressive price gains. The success of these companies should encourage investors to look beyond the largest companies and diversify in companies that have high growth potential in developing sectors and industries such as Software (Business), Leisure (Gaming), Internet (E-Commerce), Healthcare (Marijuana), Drugs (Biomedical and Genetics) and Energy (Clean).

What kind of returns are we talking about? During the three-year period between June 1, 2016 and June 3, 2019, the average gain of all 30 stocks was 302%, an ARR of 100.68%. Two pot stocks are at the top of the list – Canopy Growth, WEED – 1,899% and Village Farms, VFF – 818%. The next two top gainers will be no surprise to VectorVest subscribers and especially our webinar attendees – Shopify, SHOP – 777% gain and Kirkland Lake, KL – 570%.

VectorVest is ideally suited to find these babies. They show up in our top stocks ranked by Value, Safety and Timing, they are frequently BUY-rated, and they are often the top stocks in top Sectors and Industry Groups which we sort and rank by RT, a measure of trend strength, direction and magnitude.

Turns out, the frequency of how often a stock gets a SELL rating is just as important as the frequency of the BUY ratings. Why do I say that? Well, If you study weekly graphs of the TSX30 stocks, you will see several ideal opportunities to invest in these stocks began when they first received a BUY rating on a weekly graph. In addition, and importantly, most of these stocks rarely received a SELL rating on a weekly graph during the entire three-year period up leading up to June 3, 2019. In fact, three stocks went the entire three years with either a BUY or a HOLD rating, but never a SELL – Constellation Software, CSU, TerraVest Capital, TVK, and Summit industrial REIT, SMU.U.

VectorVest chart of CAE

Click or tap image to enlarge.

Interestingly, a member of our Lethbridge User Group, Ken Alberts, came to this conclusion several weeks ago after doing his own studies, compiling WatchLists of CA and US stocks that rarely receive a SELL rating on a weekly graph. Here’s how he describes his methodology, “I looked at weekly, all data charts in both Canada and US. Took everything off except the Rec on the top. Made a list of the stocks that have very few sells. Just to see if it made any sense, I ran all stocks (up to 100) against the index and handily beat it in every test I ran.”

After testing his WatchLists of 92 CA stocks and 193 US stocks, Ken made the following observation, “I did some thinking on why I was getting such good results on my backtests, and, it only stands to reason that over the last 15 to 20 years these stocks that have very few sells should outperform the market. So, I guess you hope that the management of the company stays the course and continues to perform.”

But do they? I decided to see how the TSX30 have performed YTD. I ran a Quicktest of all 30 to November 12th, and the result was 40.4% YTD. This was despite a few pretty big losers especially in Drug and Healthcare (marijuana) stocks. However, these were more than offset by big gainers such as Ballard Power, BLDP – 154.7%, Village Farms – 129.8%, Shopify, SHOP – 114.4%, Wesdome Gold – 90.9% and Air Canada – 87.0%.

My conclusion. There’s a lot we can learn from Ken and THE NEW TSX30.