It’s shaping up to be an impressive third quarter for equity markets with just a couple of weeks remaining.
As of the close on Sept. 13, the S&P/TSX Composite Index is up 7.74 per cent with 10 out of the 11 sectors postings gains in the quarter. The energy sector is the lone exception; however, it’s down just 1.47 per cent quarter-to-date.
Looking ahead, October has typically been a month with mixed performance. The S&P/TSX Composite Index has declined three out of the past five years (2023, 2020 and 2019) with losses of 3.42 per cent, 3.35 per cent and 1.05 per cent, respectively. On the positive side, the TSX Index rallied 5.32 per cent in October of 2022 and 4.82 per cent in October of 2021.
Once we get past October, we historically enter a seasonally strong period for stocks.
Over the past five years, the TSX Index has rallied into year end. Fourth-quarter price returns for the S&P/TSX Composite were 7.25 per cent in 2023, 5.10 per cent in 2022, 5.74 per cent in 2021, 8.14 per cent in 2020 and 2.43 per cent in 2019. You have to go back to 2018 to find a negative return during the fourth quarter. That year, the TSX Index plunged 10.89 per cent.
Strength in the fourth quarter is supported by analysts’ rolling their earnings models forward. As year-end approaches, models, which are used by analysts to forecast target prices for stocks, may begin to incorporate 2026 earnings estimates. As a result, valuations sometimes appear more reasonable and attractive, particularly for companies with strong earnings growth expectations. This can lead to upward revisions to target prices and recommendations.
Now, here’s a look at analysts’ current target prices, recommendations, forecast returns and yields for all 226 securities in the S&P/TSX Composite Index grouped by sector and ranked according to their expected price returns (excluding dividend and distribution income). The posted target price for each security is an average of all available target prices from analysts. A target price typically reflects an expected share or unit price 12 months from now based on an analyst’s financial modelling, such as a discounted cash flow or sum-of-the-parts model. For the yield provided, Bloomberg calculates this figure by annualizing the most recent announced dividend or distribution value.
It’s important to note that high target prices, which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low. Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.
Click here to download an Excel version of the report.
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