Economist David Rosenberg says Canadian earnings growth will be surprisingly high through 2013. <137>Economist David Rosenberg is photographed in his office at Gluskin Sheff in Toronto on Thursday February 14, 2013. Photo: Chris Young for The Globe and Mail<137>The Globe and Mail
Globe editors have posted this research report with permission of Gluskin Sheff + Associates Inc. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here. The following text is excerpted from the report:
Well, August 8th may well be a lucky date for the Chinese, but it was also the date in which the S&P 500 closed right where it is today at a snick below the 1,700 level. More than two months of nothing — outside that is a 2% dividend yield for those buying the 'market'.
During this interval, the Canadian stock market has appreciated 3%. And guess what? The outperformance has spanned nine of the 10 equity sectors.
The only sector where Canada has lagged was in our own 'bread and butter' — Basic Materials! The S&P Materials sector has risen 3% since August 8th while the TSX comparable is down 2% (the most significant reason for the local outperformance has been Telecom followed by Financials).
But make no mistake. The Canadian Basic Materials sector is the very cheapest in North America, followed by U.S. Technology stocks — based on where P/Es are relative to their own historical average as well as where the groups are trading relative to the broad market (again now compared to the norm).
The TSX Basic Materials segment trades at a 0.53 PEG ratio (on a three-year basis) which is half the PEG for the overall market. On a current P/E ratio basis, the group trades at a 40% discount to its historical average and a 35% discount to where it normally has traded in the past relative to the total market.
One would have to believe that the commodity equity space has tremendous valuation support. And imagine what sort of re-rating we would ever see — wouldn't that come as a big surprise to this unloved, underowned sector — if resource prices ever managed to catch a bid.
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