2025 has been a roller-coaster year, starting with the surprisingly forward move from the U.S.’s new administration, led by President Trump, that announced meaningful tariffs with various trading partners. This policy led to a meaningful decline across indices, along with tremendous uncertainty regarding the future outcome of the trade war and how this would affect the economy and companies’ earnings. 

As of mid-May, the heat between the U.S. and China seems to have slightly tempered, which led to a market rally across sectors, especially in the large-cap sector, which in some cases has quickly and fully recovered the losses from April. The astronomical tariff numbers that were as high as 145%, made the market turn to panic sell-off mode, are now looking more like negotiating tactics between countries. Although there is still uncertainty regarding the trade war, the trade negotiations are progressing positively, and we think the worst is probably behind us.

Historically, small-cap stocks tend to be the hardest hit and also may take some time to recover. In the current environment of an early recovery, we think investors can still find many high-quality Canadian small-cap names with solid fundamentals in terms of growth prospects and returns on equity, and yet are trading at an attractive discount relative to US peers. With this macro backdrop of easing trade war and a pending interest rate cut from central banks, we think small-caps in general would have room to run to narrow the discount in valuation compared to large-caps in general.

One of the key filters we use is to screen for companies with share prices that trade within the range of 52-week highs and continue to grind to new highs as time goes by. We think this is a powerful indicator mainly because (1) it is a strong signal that something is going right at the company, and investors start to recognize the company, for example, companies that raise earning guidance amid economic uncertainty or (2) tariffs do not affect companies’ earnings as investors previously thought they should have. (3) Great companies with strong growth would likely stay in the trading range of 52-week highs rather than lows, and great compounders will continue to exceed previous highs.

Below we have screened for companies with the following criteria:

• Market cap smaller than $5 billion but larger than $200 million
• Trailing twelve-month return on equity
• Trading at below 52-week highs in the range of -5%
• Forward Price/Earnings
• 5-Year Revenue Growth rate of at least 8% per year

The criteria for the screen is quite simple as we screen companies that are over $200 million but less than $5 billion in market cap, as these companies have had decent operating track records for investors to evaluate, and are still relatively small, and could be less well-known to the majority of mainstream investors. Secondly, we show basic valuation and return on equity metrics for companies with a Return on Equity. We think these criteria could provide investors with an overall picture of these companies’ quality and valuation. In addition, we look for companies with at least 8% topline growth per year over the last five years. We think small, growthy names will have room to outperform and recover in this environment.

Lastly, we look for companies that are currently trading at or below 52-week lows within 5%. We think these companies are experiencing solid momentum in share price and may likely continue for some time to narrow the gap with large-cap companies. In addition. 52-week highs are a good tool to screen for small-cap companies that are less well-known, less-covered companies with decent fundamentals in this market environment.

The screener came up with 18 names, members will recognize some of the names that we cover in our Model Portfolios and coverage lists, such as TerraVest Industries (TVK), Kinaxis (KXS) and Exchange Income Corporation (EIF).

Again, these companies on the list are not recommendations but a starting point that helps investors generate potential investment ideas and strategies. Investors can view our previous screener blog here.

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.