BMO chief investment strategist Brian Belski believes that the pace of the U.S. equity market rally is unsustainable and that as a result, the TSX will outperform the S&P 500 in the coming months.
Mr. Belski’s most recent research report outlined how U.S. markets are broadening out – returns are less driven by megacap technology companies and more determined by sectors with slower profit growth rates – and so performance of the S&P 500 will likely be choppy and flat in the coming months.
BMO’s analysis of market history shows that domestic stocks have been able to post solid returns and outperform U.S markets when they are rangebound. Since 1990, S&P/TSX Composite Index returns have exceeded the S&P 500 by 4 percentage points when the latter was relatively trendless. Domestic stocks outperformed 61 per cent of the time.
In addition, the TSX has strong representation in market sectors like energy and financials where relative performance is improving and valuations are below historical averages. The strategist is particularly interested in communications services and real estate stocks where underperformance is significant relative to history.
Mr. Belski developed a stock screen to uncover contrarian buying opportunities with the biggest upside potential if domestic stocks begin to outperform. TSX stocks with market capitalizations above $600-million were filtered to find those with year-to-date price changes ranging between a gain of 10 per cent and a loss of 20 per cent, less than half of analyst earnings revisions were positive, forward price to earnings ratios were below 20 times, and less than 50 per cent of analyst ratings were buys.
The end result is a list of 18 companies representing what BMO calls “Canadian True Contrarian” stocks. These are, in alphabetical order: BCE Inc., Birchcliff Energy Ltd., Bank of Nova Scotia, Cogeco Communications Inc., Canadian Imperial Bank of Commerce, Canadian National Railway Company, Capital Power Corporation, CT REIT, Canadian Tire Corporation, Canadian Utilities Limited, Dream Office REIT, Empire Co. Ltd., Enghouse Systems Limited, Canada Goose Holdings Inc., H&R REIT, IGM Financial Inc., Labrador Iron Ore Royalty Corp, and Richelieu Hardware Ltd.
— Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Extendicare Inc. (EXE-T) As a big segment of the population reaches their later golden years, long-term care is a burgeoning sector that may offer some opportunities, say The Contra Guys’ Benj Gallander and Ben Stadelmann. This stock pays a healthy dividend and could produce some nice capital gains in the years ahead thanks to its growing assets, they say.
The Rundown
Rising commodities are lifting stocks, but not profits. That could be a problem
Commodity prices have been rallying over the past six weeks, but the share prices of major metals producers now face a couple of significant hurdles: high valuations and a challenging earnings season. David Berman reports. Meanwhile, Philip MacKellar of The Contra Guys argues Pan American Silver Corp. (PAAS-T) is the most interesting of the precious metals stocks right now that the newsletter recommends.
How much will you pay in investment fees over your lifetime?
You may or may not know how much you’re paying for investment advice. But you are almost certainly not aware of how quickly those fees can add up when saving for major goals like retirement, says actuary Frederick Vettese. He has a vivid chart to prove it.
Negative equity/bond correlation is positive for 60-40 portfolio
Correlations between U.S. stocks and bonds are weakening and in some cases turning negative for the first time in almost a year, breathing new life into the standard “60-40″ investment portfolio, reports Reuters.
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Ask Globe Investor
Question: I have a question about John Heinzl’s model Yield Hog Dividend Growth Portfolio. If he was to create a similar portfolio of U.S. stocks and exchange-traded funds what would he choose?
Answer: My model portfolio already has some U.S. exposure through the iShares Core Dividend Growth ETF (DGRO-A). In fact, the ETF has been the portfolio’s top performer, with a price gain of about 77 per cent since the portfolio’s inception on Oct. 1, 2017.
One drawback of DGRO, however, is its modest weighting of about 16 per cent in information technology stocks, which have been a key engine driving the market higher. If you are looking to add U.S. exposure to your portfolio, you may want to consider a traditional S&P 500 Index ETF that will give you a tech weighting closer to 30 per cent.
Another advantage is that some S&P 500 Index ETFs trade on a Canadian exchange in Canadian dollars, sparing you the expense of converting your loonies into U.S. dollars at your broker’s unfavourable exchange rate. Examples include the iShares Core S&P 500 Index ETF (XUS-T) and the BMO S&P 500 Index ETF (ZSP-T), both of which charge ultralow management expense ratios of 0.09 per cent. If you’re looking to control currency-related volatility, you can opt for the currency-hedged versions of these funds, which trade under the symbols XSP-T and ZUE-T, respectively.
In my personal accounts, I get all of my U.S. exposure through ZSP (which I can buy and sell commission-free through BMO InvestorLine; several other brokers also offer free ETF trades). I used to own individual U.S. stocks as well, but with so many great companies to choose from south of the border, I prefer ETFs for the simplicity and diversification they provide.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
