The Stock: Power Corp. of Canada
Recent price: $25.99
The Trend: The best performing sector on the Toronto Stock Exchange over the past three months, after the red hot mining stocks, is the financials. Stock Trends has turned bullish on Canadian financial stocks for the first time since the summer of 2007. In the past month a growing number of bank and insurance stocks have been making appearances in the weekly TSX Stock Trends screens, alerting investors to changes in long-term trend and highlighting buying opportunities. This is good news for bullish investors looking for exposure outside the materials and energy sectors. The change in long-term trend for Canadian financial stocks promises more latitude for a continuation of the TSX's spring rally through the next quarter.
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The Trade: All of the big five Canadian banks are now Stock Trends Bullish - a refreshing leg for future price movement in the sector. But insurance stocks are also driving the sector this quarter. Power Corp. of Canada is a name of great Canadian heritage, and through its subsidiary of Power Financial Corp. controls a stable of financial services operations including Great-West Life Assurance, London Life Insurance, Canada Life Assurance, Investors Group, and Mackenzie Financial Corp. Although Power Corp is majority owned (62%) by the family of chairman and co-CEO Paul Desmarais Jr., the stock represents a piece of Canada's second-highest corporate revenue generator and a significant stake in the financial sector. POW is a current Stock Trends Bullish Crossover stock (signalling a change in long-term trend from Bearish to Bullish), and gives longer-term traders a good entry point for increasing exposure to insurance and financial services upside in an improving Canadian economy.
The Upside: Power Corp. shares have risen almost 50% since the low of $14.70 three months ago, but are still lagging the performance of Manulife Financial Corp. and Sun Life Financial over the period. POW's initial spring breakout was signalled by its Stock Trends Weak Bearish indicator (the Weak Bearish indicator tells us that the share price is above the bearish short-term (13-week moving average) trend line) at the beginning of April. The stock was trading at $20.72 at the time. With the exception of last week's share price pullback, the stock advanced in a steady price pattern over the period since. It recorded higher lows in nine of the ten weeks leading up to last week's falter - all achieved on steady but unspectacular trading volume. Last Friday's recovery from Thursday's dip did show some strong buying, though. Notably, the share price found support near the 13-week moving average trend line and bounced back to close Friday at the week's high. This recovery gives guidance about price support at the $23-$24 level as the stock battles with overhead resistance built at the $26.50 region. If price support holds along the short-term trend line, investors can anticipate a move through resistance and an advance of POW to the $30 level over the approaching third quarter.
The Downside: Many TSX stocks are vulnerable to a pullback in commodity strength - Canadian financials in particular. The premise of a return to earnings growth for financial stocks depends on the resilience of the global economy's emerging recovery - a driver of the resource-dependent Canadian economy. If POW drops below $23 investors have to make a call about the trade. Stock Trends would advise to abandon trades that turn Weak Bullish (this would happen if POW dips below $23.) Presuming the trend line support holds in the early stage of this trade, investors can keep an eye on how the stock maintains its Stock Trends Bullish indicator (published every Saturday in the weekly TSX stock listings of The Globe & Mail's Report on Business).
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/