Domestic renewable power stocks have been shockingly volatile in recent years. The S&P/TSX Renewable Energy and Clean Technology Index soared 103 per cent between March 2020 and the end of January 2021, then cratered 57 per cent between then and now. CIBC analyst Mark Jarvi believes the sector is due for another rally.
Mr. Jarvi admits that his bullish call on renewable power might be early as valuations are not yet glaringly attractive and his forecasted earnings growth for 2024 at approximately 3 per cent is far from impressive. However, the strong fourth quarter rally for many stocks in the sector emphasized the upside potential arising from lower interest rate assumptions.
CIBC also expects further government policy support to provide growth upside in the medium term. The sector also presents attractive dividend yields for income-oriented investors.
Boralex Inc. (BLX-T) and Northland Power Inc. (NPI-T) are Mr. Jarvi’s top picks. In the first case he believes Boralex offers excellent risk-adjusted return potential as the current share price understates future growth prospects. Boralex has some of the strongest forecasted profit growth in the sector and the ability to expand operations in its primary markets of France, Quebec and the U.S.
Northland Power, the other top pick, offers higher risk but higher return potential, according to the analyst. He expects investors will eventually reward the company’s progress in offshore wind operations and that sentiment towards offshore wind will improve generally, providing valuation upside. Northland Power currently yields 4.9 per cent.
Mr. Jarvi’s admission that his optimism may be premature is important for investors to remember. A period of waiting, watching and researching renewable power stocks is likely the prudent course.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
People keep making this costly TFSA mistake – and paying penalties averaging almost $1,500
Canadians are adding too much to their TFSAs and paying big penalties, reports Rob Carrick. The system for keeping people updated on their TFSA contribution room could certainly be better, but TFSA holders themselves need to pay more attention to what they’re doing. A good start for many would be to ask themselves if they’re juggling too many separate TFSA accounts.
The economics of Trump vs. Biden – and why the polling numbers aren’t so irrational
While Derek Holt, Scotiabank’s top economist, thinks many of Donald Trump’s policies are misguided and dangerous, he thinks one can say the same about the Biden administration’s policy biases. While many Americans have a very poor understanding of how dangerous Mr. Trump could be on multiple touch points, they understand how Mr. Biden’s policies could well slam their personal finances - including stock market returns - and they want nothing to do with that, he argues.
Also see: How an election-packed 2024 could swing world markets
This chart will tell you when to bolt from Canadian investments
Scott Barlow firmly believes there’s one chart that represents the most important data relationship for the domestic economy in 2024. It measures the extent to which mortgage debt is strangling Canadian economic growth. For investors wondering when to lower their exposure to Canada’s economy, he says it’s worth monitoring.
Market Views
Too early to declare victory over inflation or recession, PIMCO says
U.S. ‘soft landing’ scenario could boost healthcare, industrials shares: Morgan Stanley strategists
Others (for subscribers)
Number Cruncher: 10 TSX banks with the most attractive valuations as rates poised to fall
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Million-dollar trades in these four stocks
Tuesday’s analyst upgrades and downgrades
Microsoft challenges Apple as world’s most valuable company
Globe Advisor
Investing strategies for FHSAs depend on the time horizon for buying a first home
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Ask Globe Investor
Question: I read an article in the Globe and Mail titled “16 Outperforming Passive ETFs” by Ian Tam and wanted to ask for your opinion. The ETF that caught my attention was the Horizons Europe 50 Index ETF (HXX-T). It interests me because of the foreign content aspect and the need to diversify out of North America inside my wife’s RRSP. Its performance is respectable over the last five years, and it even outperformed the S&P this year. – Paul C.
Answer: HXX invests in 50 of the largest companies in Europe. European stocks had lagged until this year, but the fund is now on track for its best annual performance since it was launched in late 2016. It showed a year-to-date gain of just over 22 per cent as of the end of November. The five-year average annual compound rate of return was 9.44 per cent. The MER is 0.19 per cent.
I checked the results of European stock funds from BMO, iShares, Vanguard, CI, and Brompton. Only the CI WisdomTree Europe Hedged Equity Index ETF (EHE-B-T) comes close to matching the Horizons fund in year-to-date returns, However, it’s an inferior performer over five years with an average annual compound rate of return of 6.51 per cent. The MER is also much higher, at 0.6 per cent.
In this category, the Horizons fund looks like the best choice for your wife’s RRSP.
--Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question on the subject line)
What’s up in the days ahead
What should you do if you missed a big market rally? Philip MacKellar of The Contra Guys will have some advice.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff