The Stock: Power Corp. of Canada
Current price: $23.79
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 trends and highlighting buying opportunities. 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.
The Trade: All of the big five Canadian banks are now Stock Trends Bullish - a refreshing outlook for future price movement in the sector. But insurance stocks are also driving the sector this quarter. Power Corp. of Canada, through its subsidiary of Power Financial Corp., controls a stable of financial services operations including Great-West Life, London Life, Canada Life, Investors Group and Mackenzie Financial. Power Corp. 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 rising insurance and financial services.
The Upside: Power Corp. shares have risen almost 50 per cent since the low of $14.70 three months ago, but are still lagging the performance of Manulife and Sun Life over the period.
With the exception of last week's pullback, the stock advanced steadily. If price support holds along the short-term trend line, investors can anticipate an advance to the $30 level over the 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 financials depends on the resilience of the global economy's emerging recovery - a driver of the resource-dependent Canadian economy. If Power Corp. drops below $23, investors have to make a call about the trade.
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 Stocktrends.ca