With an increasing number of Canadian stocks enjoying strong performance this year, BMO Capital Markets chief investment strategist Brian Belski believes the TSX is “poised for a strong catch-up trade,” ending a long period of underperforming other developed markets.
The strategist provided a list of growth at a reasonable price (GARP) stocks as the best way to benefit from the trend.
In 2023, only two of Mr. Belski’s eight broad investment strategies – the technical term is factors - outperformed the S&P/TSX Composite Index. This indicates that very few stocks drove the benchmark’s 11.8 per cent return.
In 2024, all of the eight factors are outperforming the index, which implies a broadening out of equity returns. In addition to the low valuation and capital usage (profitability) leaders that outperformed last year, stocks chosen by trailing and future growth estimates, balance sheet quality, low risk, high risk and technical analysis are also beating the benchmark’s year to date 4.7 per cent return.
Each broad factor category includes specific investment strategies. For instance, the top performing strategy so far this year is the stocks with the highest five-year forward earnings estimates, which have returned 20.1 per cent year to date. Five-year forward earnings stocks are under the broad future growth category.
Highest beta stocks, under the high-risk category, have returned 16.1 per cent so far in 2024. Companies with the lowest EV/EBITA ratios (enterprise value to earnings before interest taxation depreciation and amortization, under the value factor) are also up 16.1 per cent this year.
With growth and value strategies both working, Mr. Belski believes that investors should buy growth at a reasonable price stocks. The strategist maintains a Canadian Tactical GARP Opportunities Model Portfolio of companies covered by BMO Capital Market analysts. These stocks have valuations below the market average and are expected to hit record earnings levels in the next few years.
The outperform rated names on the GARP list are, in alphabetical order, Altagas Ltd., ARC Resources Ltd., Brookfield Corp., B2Gold Corp., CAE Inc., Canadian Apartment Properties REIT, Celestica Inc., Canadian Natural Resources Ltd., Canadian National Railway Co., Cenovus Energy Inc., Canadian Western Bank, BRP Inc., Emera Inc., EQB Inc., Evertz Technologies Ltd., Finning International Inc., CGI Inc., Manulife Financial Corp., Magna International Inc., National Bank of Canada, New Gold Inc., Nutrien Ltd., OceanaGold Corp., Restaurant Brands International Inc., Rogers Communications Inc., Royal Bank of Canada, Saputo Inc., Sun Life Financial Inc., Stantec Inc., Telus Corp., Tourmaline Oil Corp. and TC Energy Corp.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
BCE Inc. (BCE-T) Gordon Pape has long recommended the telecom as an income-rich investment - and he’s not changing this view despite the stock being in a slump. He notes a major Canadian bank thinks there’s little downside left in BCE stock and little risk of a dividend cut. Buying now enables you to take advantage of a fat dividend while waiting for a potential capital gain, the veteran investment writer says.
Tesla Inc. (TSLA-Q) John Heinzl thinks buying the EV automaker would be gambling, not investing. Even though Tesla’s shares have dropped by more than half from their record high of more than US$400 in 2021, the risks facing the company are only growing. He provides five reasons to stay far away.
GameStop Corp. (GME-N) Speaking of gambling, the meme stock is back in action after social media persona “Roaring Kitty,” whose online posts sparked a trading frenzy in the videogame retailer in 2021, made a return to Twitter after three years.
Walmart Inc. (WMT-N) The retailing giant’s earnings this week amid signs of weaker discretionary spending could add fuel to a rally that has propelled its shares to record highs, or potentially spook investors looking to justify the heavyweight retailer’s pricey valuation.
The Rundown
On customer satisfaction, Wealthsimple and other low-cost players take big bank online brokerages to school
Zero-commission stock and ETF trading has been around for a few years in Canada. Wealthsimple introduced it, followed by National Bank Direct Brokerage and Desjardins. But the 2024 J.D. Power survey suggests it’s only recently that fees have become a deciding factor in customer satisfaction, reports Rob Carrick.
Are we headed for 24/7 stock trading?
The New York Stock Exchange is currently surveying market participants on their thoughts about implementing 24/7 trading. Tim Shufelt explores whether the idea has merit.
Trading volumes surge as investors return to base metals
The boom times are back for base metals traders. Over 17 million contracts traded on the London Metal Exchange (LME) in April, making it an all-time record month in outright volume terms. Veteran metals reporter Andy Home of Reuters explains why investors are rushing back to the sector.
Others (for subscribers)
Rob Carrick’s ETF Buyer’s Guide 2024: The complete series
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Globe Advisor
Opportunity arises for nickel investors with claims of supply glut overblown
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What’s up in the days ahead
Jennifer Dowty probes the minds of big bank economists Carrie Freestone and Benjamin Tal for their latest insight on interest rates, inflation and housing.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff