In a recent article, I shared the three most popular Canadian stocks, using market capitalization (“market cap”) as the criterion for popularity. The reasoning behind this was that the more valuable a company is, the more shareholders hold its stock. I think my methodology was reasonably sound: amount owned is one measure of how popular a stock is.
There are other ways of measuring a stock’s popularity, though. For example, trading volume. If a stock exchanges hands more frequently than others while trending upward, then it enjoys a hungry and liquid market. In this article, I will share the three most popular TSX stocks going by a combination of volume and price direction (i.e., widely traded stocks trending upward over the measurement period).
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Royal Bank
Royal Bank of Canada (TSX:RY) was the most popular Canadian stock going by volume and price momentum over the last three months. It traded hands 11.2 million times in the period and the price increased 14%. Because its shares trended upward on high volume, Royal Bank’s volume indicates positive sentiment.
Why do investors like Royal Bank stock?
First of all, it’s relatively cheap, trading at 13.3 times earnings and 1.9 times book value. That’s cheaper than the markets although arguably a little pricey for a bank. Second, it’s ultra-profitable, with a 28% profit margin. Third and finally, RY has a sizable investment banking segment (RBC Capital markets) and investment banking fees are growing by leaps and bounds this year. All of these factors combine to make RY a very intriguing buy.
Manulife
Next up we have Manulife Financial (TSX:MFC). This was the third-most traded TSX stock with a positive price trend in the last three months. TD, the second-highest volume stock, had a downward price trend and thus didn’t pass my test for “popularity.”
Why is Manulife stock popular today? First, it’s even cheaper than Royal Bank, trading at 9.7 times earnings and 1.2 times book. Second, it is quite profitable, with an 18% profit margin and a 9.4% return on equity. Third, it did a phenomenal amount of growth over the last 12 months, with revenue up 33% and earnings up 917%. Overall, I’m not surprised that this stock is seeing an uptick in interest from investors.
Enbridge
Last on our list, we have Enbridge (TSX:ENB). Over the last three months it has risen 3.3% on volume of six million. Enbridge is popular mainly because of its high dividend yield. The stock yields 7.3%, and it earns enough profit to cover that yield (historically that wasn’t the case). The company sometimes gets sued in the United States, which causes temporary costs and other hiccups. Thanks to its high payout ratio (improved but still near 100%), the company rarely delivers major capital gains. However, the yield alone is arguably a satisfactory return, especially if the dividend increases.
