10 Essential Steps to Screening for Stocks on the Toronto Stock Exchange (TSX)

10 Essential Steps to Screening for Stocks on the Toronto Stock Exchange (TSX)


It is a wonderful time to be a stock investor with so many free tools available.  Why not screen for the best of the best businesses available?  Feel free to be picky, there are great business models available at attractive valuations in all market conditions! Stock screeners help investors start looking in the right place for opportunities before conducting even more research prior to a purchase.  There are many stock screeners available, but they are primarily only useful with full data sets for larger stock exchanges such as the NYSE and NASDAQ.  

Click the button below to go to the TMX Money Stock Screener.  I recommend creating an account to save all the screening criteria and save time in the future.  I recommend using Investopedia to familiarize yourself with any screening criteria we are interested in.

Step 1:

Create a new screen criteria under Descriptive select Exchange and choose the Toronto Stock Exchange.

Step 2:

Under Valuation select Market cap.  This can vary depending on your investing style.  I would suggest choosing companies that are greater than 500 million in market capitalization.  I tend to invest in companies with a market cap of at least 1 billion.

Step 3:

Under Valuation select Current Price Earnings Ratio.  Screen for companies with a PE ratio less than or equal to 20.  Ideally as suggested by Benjamin Graham in The Intelligent Investor, we want companies with a PE less than 15.  However, there are opportunities for higher valuations.  I will even select anything less than 50.  The key is that we are not purchasing PE 100 or more companies.

Step 4:

As a dividend investor, under Dividends, select Current Dividend Yield.  Set this field to greater than zero.  This will return your screen results to companies that issue a dividend.   When conducting further research later, make sure the company is not cutting dividends and will hopefully growing their dividend for shareholders.

Step 5:

Under Balance Sheet select Total Debt to Equity.  Screen for less than or equal to 3.  Ideally, the company will have this less than 1.  However, some great businesses do operate highly leveraged.  That being said, I prefer companies that operate with low debt to equity regardless of their industry.  Companies carrying high debt to equity ratios are found to struggle in down markets and can be linked to large bankruptcies in the past.  After all, the ultimate risk is going to zero.

Step 6:

Under Growth, select 5 Year Annual Income Growth Rate.  Screen for companies that are growing their income by Greater or equal to 5% in the last 5 years.  We want to see that a business is growing their income by cutting operating costs or growing their income and ideally both!

Step 7:

Under Profitability, select Return on Equity.  We want to screen for businesses that are achieving a ROE Greater or equal to 10%.  ROE depicts how effective a company is at returning profit with shareholder's capital, your capital.

Step 8: 

Under Balance Sheet, select Price to Tangible Book Value.  Screen for less than or equal to 3. Ideally, we want to pay the lowest price to book value possible as we are attaining their business for the lowest multiple.  Buys with low price to book ratios have shown strong performance throughout history.

Step 9:

Under Balance Sheet, select Price to Revenue.  Screen for less than or equal to 4.  Again, the lower the multiple, the better.  The advantage of companies trading at a discount to their sales is avoiding accounting tricks from corporations.  Businesses are pretty good at using accounting tricks to make their valuation seem more attractive with other ratios.  However, sales are pretty concrete making this an overlooked valuation ratio.

Step 10:

Under Balance Sheet select Current Ratio.  Screen for Greater or equal to 1.  This will help avoid companies with short term liabilities exceeding short term assets.  This provides some extra safety and verifies that management is being responsible.

Modify the criteria until you have arrived at 10 stocks at a minimum.  Now the real research has begun.  We want to now look for qualitative indicators such as having a competitive advantage, dominant in their industry with difficult barriers of entry, growing dividends, growing earnings, good management and strong annual statements of cash flow, income and balance sheet.  

Additionally, I want companies that are paying a dividend safely with a low payout ratio.  This means the company is able to distribute cash dividends without having to dish out too large of a portion of their bottom line.  Having an abundance of cash for growing and investing in their business is generally great for investors.

A typical stock screener at TMX Money will look like this: