Cineplex Inc.: The Best Consumer Discretionary Stock Not in the S&P/TSX 60

There are a total of six consumer discretionary stocks in the S&P/TSX 60, and the average market cap of those companies is $15.8 billion, making them big by Canadian standards. But one star performer, Cineplex Inc. (TSX:CGX), is missing from the list, forcing many passive investors to choose the composite instead.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you went to your local movie theatre in January, there’s a high probability you were among the thousands of Canadians who’ve shelled out good money in 2016 to watch The Force Awakens, the latest in the Star Wars franchise. The film is projected to generate ticket sales of $2.2 billion, the third-highest grossing motion picture release behind only Titanic and Avatar.

Movies are big business, and no one does it better than Cineplex Inc. (TSX:CGX). Fool contributor Joseph Solitro does a good job highlighting some of the positives of owning Canada’s largest operator of movie theatres. There’s no need for me to repeat those positives.

Instead, I’m left scratching my head as to why a company whose stock has beaten the S&P/TSX 60 by 17 percentage points on an annualized basis over the past five years, and 10 percentage points over the last 10, is nowhere to be found in the list of 60 stocks that constitute the index.

You would think Cineplex would be a keeper, especially since there are only six consumer discretionary stocks in the 60-stock index compared to 10 financials and 14 from the energy sector.

The official reason is that the S&P/TSX 60 is a stock index representative of 60 of the most valuable companies in Canada; David Milstead of the Globe and Mail wrote about this very subject in January 2014, suggesting that not every company that has a market cap above $8 billion makes it into the index—they have rules.

At the time of Milstead’s article, there were 12 companies with market caps above $8 billion that didn’t meet the Canadian S&P Index Committee’s criteria, thus allowing 12 smaller companies into the mix, some of which are right around Cineplex’s current market cap of $3.2 billion.

How much would you have made over the past five years if you had invested $10,000 in the iShares S&P/TSX 60 Index ETF (TSX:XIU), $10,000 in the iShares Core S&P/TSX Capped Composite Index ETF (NYSE:XIC), and $10,000 in Cineplex, which is part of the broader 239-stock index?

Well, $30,000 would now be worth $44,558, an annualized return of 8.2%. That’s the good news. The bad news—at least if you’re a passive investor—is that Cineplex generated all but 7% of the total return.

So, what’s an investor to do?

Both indices are bound to make a comeback at some point once oil prices get off the mat. Buying Cineplex without any diversification beyond a single stock is, logically speaking, a fool’s errand—except when you consider Cineplex’s track record.

In the past decade it has experienced just one year with a negative return—down 7.2% in 2006. That compares with three down years for the S&P/TSX 60, which lost 33% in 2008, 8.7% in 2011, and 8.3% in 2015, an average decline of 18.3%, more than double Cineplex’s one losing year.

It’s for this reason why I feel Cineplex is indeed the best consumer discretionary stock not in the S&P/TSX 60—and that’s a darn shame.

Should you invest $1,000 in Royal Bank of Canada right now?

Before you buy stock in Royal Bank of Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Royal Bank of Canada wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

Beware of bad investing advice.
Dividend Stocks

Where I’D Invest $1,000 in 3 No-Brainer Canadian Stocks Under $150

Want to invest $1,000 in some great stocks? Here's a trio that investors can buy at a discount right now…

Read more »

e-commerce shopping getting a package
Tech Stocks

Should You Buy Shopify Stock While It’s Below $120?

Shopify stock has had a strong growth story, but it probably isn't over yet.

Read more »

a person looks out a window into a cityscape
Metals and Mining Stocks

Why I’d Consider This Canadian Stock for My TFSA as Tariffs Reshape Markets

Cameco (TSX:CCO) stock could fortify your TFSA against tariff war headwinds, and provide growth opportunities during recessions

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Top Energy Stocks to Invest in for 2025

Energy stocks are a solid choice for investors, but these could be the best option in 2025.

Read more »

cloud computing
Tech Stocks

How I’d Allocate $1,000 in Tech Stocks in Today’s Market

Investing regularly in undervalued tech stocks such as RingCentral should help you derive outsized gains in 2025 and beyond.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

The 1 Canadian Stock I’d Buy and Hold Forever in a TFSA

This Canadian stock is a strong option for any TFSA, and here's why.

Read more »

Asset Management
Stocks for Beginners

Got $3,000? How I’d Distribute it Among 3 Growth Stocks for Decade-Long Appreciation 

The market crashed after Trump's tariffs became effective on April 2. You can still make money in this market with…

Read more »

grow money, wealth build
Stocks for Beginners

How I’d Allocate $20,000 in Growth Stocks in Today’s Market

Here’s how I’d split a $20K investment between two Canadian growth stocks with big potential in the years ahead.

Read more »