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Fred Lum/The Globe and Mail

Brian Belski, chief investment strategist at BMO Nesbitt Burns, believes Canadian investors are likely to face many of the same issues in 2018 that "befuddled" them in 2017.

The good news, however, is that another year of positive stock market performance should be expected, according to Mr. Belski.

In the firm's "Best of BMO" research report, released Wednesday, the strategist predicted the following factors will impact investment decisions for the year ahead:

- Earnings growth will exceed expectations.

- Valuation multiples will expand to historic averages.

- The Bank of Canada will underestimate growth "yet dovish attitudes and fears persist."

- "GDP went from 1.5 per cent in 2016 to 3.0 per cent now expected in 2017; but forecasts are decelerating to 2.2 per cent in 2018."

- The wait will continue for the U.S. to implement "anything" policy-wise "whilst NAFTA, tariffs and carbon taxing fears are lingering overhead."

- Investor sentiment will involve "extremely negative institutions; skittish private clients."

- The housing market won't crash.

- Oil will be stuck within a range.

- There will be no momentum for gold.

"Normally, we would expect the Canadian economy to perform well during later stages in the cycle, benefitting from steady global growth (3.5 per cent in 2018) and the ensuing demand for materials," said Bert Powell, BMO's Director of Canadian Equity Research. "While we indeed expect this to be the case, headwinds include NAFTA-related uncertainty, and the fallout from measures to address the overheated housing market, especially in Toronto and Vancouver.

"We note that global demand for materials is an important driver for the outperformance of the TSX, but not the only one. The Canadian economy is intricately intertwined with that of the U.S., and should benefit from the strengthening of the latter, but much hinges on how NAFTA negotiations unfold. Generally, more synchronized global growth and a healthy U.S. economy should be supportive of our call for 17,600 (up 8.6 per cent year over year) for the S&P/TSX [composite index]. More broadly, we expect three hikes (75 basis points) from the Bank of Canada in 2018 (fewer in the event of a negative NAFTA outcome), and continued strength in Canadian housing despite tighter OSFI rules."

In the report, the firm's analysts highlighted their top ideas for the year ahead. The list includes 17 large-cap TSX-listed stocks spread across four different categories – growth, growth at a reasonable price (GARP), value and catalysts.

The firm chose a pair of growth stocks:

First Quantum Minerals Ltd. (FM-T), "outperform" rating, $24 target, consensus: $20.35.

Analyst Alex Terentiew: "First Quantum continues to offer some of the best exposure to higher copper prices and increasing cash flow, a result of its growing copper production profile in Zambia and in Panama. With most of its low-priced copper hedges rolling off at the end of 2017 and early 2018, FM remains largely exposed to copper prices in 2018 and beyond, periods where we anticipate tightness in the market and higher prices. Continued improvement at its Zambian mines, a startup of Cobre Panama and sustained copper price strength, we expect will result in share price outperformance in 2018."

Premium Brand Holdings Corp. (PBH-T), "outperform" rating, $118 target, consensus: $114.28.

Analyst Stephen MacLeod: "We believe Premium Brands is well positioned to benefit from long-term and emerging consumer trends. Premium Brands' diverse specialty food product platforms are poised to take advantage of several consumer trends, such as changing demographics (i.e., growth in ethnic foods); increased demand for convenience-oriented foods and meal solutions; a desire for more sophisticated food experiences; and increasing awareness about diet and health. We expect these secular trends to provide support for organic growth over the next several years, as well as drive accelerated acquisition activity. We also like PBH's strong FCF generation, ROIC [return on invested capital metrics, recent B/S deleveraging, and potential for ongoing dividend increases."

BMO selected eight stocks in the Growth at a Reasonable Price (GARP). They are:

Bank of Nova Scotia (BNS-T), "outperform" rating, $86 target, consensus: $88.71.

Analyst Sohrab Movahedi: "With BNS, growth and valuation are not mutually exclusive. We see peer-leading EPS growth in each of 2018 and 2019 but at 'average' valuation multiples. Our Outperform rating on BNS is based on expectations of: (1) continued efficiency improvements bank-wide from restructuring initiatives over the past couple of years; (2) industry-leading earnings growth, driven by International Banking (about one-third of total bank earnings) and scale benefits in Chile following the closing of BBVA Chile; (3) rebound in its Global Banking & Market segment, which was hurt by atypically weak trading revenue in Q4/17; (4) continued resiliency in its domestic banking operations where the bank has improved operating leverage and overall profitability by thoughtfully leveraging its risk culture; and (5) expectations of continued disciplined and shareholder-friendly capital management."

Finning International Inc. (FTT-T), "outperform" rating, $37 target, consensus: $36.39.

Analyst Devin Dodge: "We expect improving demand conditions across many of Finning's core markets will continue to gain momentum in 2018 and drive strong topline growth for the company. In particular, we believe Finning has significant leverage to a cyclical recovery in the mining sector, as well as improving activity levels in Western Canada. Moreover, the recent efficiency improvements and a greater focus on operating and cost discipline leave the company well positioned to generate strong incremental margins and earnings growth."

CGI Group Inc.(GIB.A-T), "outperform" rating, $74 target, consensus: $73.34.

Analyst Thanos Moschopoulos : "We believe that Street estimates for FY2018 (which call for 10 per cent year-over-year EPS growth) should be well achievable, with room for potential upside—based on the tuck-in M&A and share buybacks that CGI has already completed, its ongoing organic revenue growth, and a growing mix of high-margin IP revenue. Further, CGI has an underlevered balance sheet (0.8 times debt/EBITDA), as well as strong cash generation and an excellent track record of capital deployment. We consequently expect that CGI will continue to execute on buybacks and M&A. We believe valuation is attractive based on our view that CGI can grow EPS at a 10-per-cent-plus longer-term CAGR."

Kirkland Lake Gold Ltd. (KL-T), "outperform" rating, $24.50 target, consensus: $22.73.

Analyst Brian Quast: "Kirkland Lake Gold had tremendous success in 2017, particularly through the drill bit. 2018 will mark the flagship Fosterville asset entering the highgrade Swan Zone and a decision for another shaft at the Macassa Mine. Kirkland Lake represents a long-term, GARP strategy in the medium cap gold industry. Investors could benefit from low-risk value generation from the Swan Zone complemented by the growth potential of a fully internally financed shaft construction and Macassa, and further potential acquisition possibilities. Exploration results will likely also add appeal to this stock."

Manulife Financial Corp. (MFC-T), "outperform" rating, $31 target, consensus: $31.17.

Analyst Tom MacKinnon: "At 10 times 2018 estimated core EPS and 1.4 times price-to-book value, with a 2016-2018E EPS CAGR of 15 per cent, MFC is an excellent large-cap GARP story, in our view. With more than 50 per cent of core earnings coming from high-growth and high-ROE Asia insurance and Global WAM businesses, we believe there is potential for continued earnings momentum as MFC fully realizes the benefits of recent Asia acquisitions (DBS Bancassurance, Standard Chartered MPF & ORSO businesses) and improves WAM EBITDA margins. In addition to industry-leading organic growth, we believe balance sheet optimization provides a significant catalyst for multiple expansion in the medium term, as a sale or another transaction that frees up capital from the lower-ROE legacy businesses would result in a higher ROE, better risk profile, and higher multiple."

Quebecor Inc. (QBR.B-T), "outperform" rating, $27.50 target, consensus: $27.42.

Analyst Tim Casey: "We rate shares in Quebecor Outperform based on the strength of its telecommunications business. Videotron is one of the best-performing cable companies in North America with top-of-class operating margins and a very strong brand position in the Quebec marketplace. Positive momentum in wireless bodes well for revenue, EBITDA, and free cash flow accretion going forward. Quebecor is relatively immune to a changing competitive landscape in Western Canada. A key potential catalyst for the stock is the elimination of the holding company discount once Quebecor buys full ownership of QMI (Quebecor Media Inc.). On a relative basis, we think Quebecor offers an attractive combination of growth (6 per cent 2018 estimated EBITDA growth highest among peer group), catalysts (Caisse takeout) and valuation (7 times 2018E EBITDA versus peers in the 8-8.5 times 2018E EBITDA range; 25-per-cent discount to our 2019 estimated NAV of $31/share)."

SNC-Lavalin Group Inc. (SNC-T), "outperform" rating, $68 target, consensus: $69.86.

Mr. Dodge: "We believe SNC stock is nearing an inflection point and is poised to break out of its trading range of the last 18 months. The long-awaited pickup in Canadian infrastructure spending is expected to take hold in 2018. The outlook for the Power business is favourable, while the company is well positioned to benefit from an upturn in the mining sector. Global E&P capital spending appears to have bottomed, which should help to stabilize financial performance in SNC's O&G business. In addition, the potential adoption of a DPA framework by the Canadian government could remove an overhang on the shares."

Seven Generations Energy Ltd.(VII-T), "outperform" rating, $24 target, consensus: $23.99.

Analyst Joe Levesque: "Seven Generations offers top-tier cash flow generation at a heavily discounted price. The company is well positioned to outperform given its superior netbacks, which benefit from strong liquids yields and premium gas pricing received from its pipeline service on Alliance. We expect the valuation discount to dissipate once the company establishes a history of guidance attainment, and, therefore, the current valuation contains meaningful upside."

Four value stocks were selected:

Canadian Natural Resources Ltd. (CNQ-T), "outperform" rating, $56 target, consensus: $52.50.

Analyst Randy Ollenberger: "Canadian Natural Resources offers investors a combination of growing free cash flow and organic production growth. The company provides one of the highest free cash yields among its Large Cap North American and global peers. Canadian Natural also has an attractive portfolio of organic investment opportunities that are capable of generating attractive returns to shareholders at oil prices below $50 per barrel."

Canadian Tire Corp. Ltd. (CTC.A-T), "outperform" rating, $182 target, consensus: $179.38.

Analyst Peter Sklar: "We believe Canadian Tire presents a compelling opportunity for investors due to its low valuation and consistent improvement of results. CTC's implied multiple for the core retail businesses (after carving out the value of the REIT and the financial services business) is currently 5.5 times our one-year forward retail EBITDA estimate, which we believe is a considerable discount to other mainline Canadian retailing/consumer stocks. We also believe that despite the consensus negative outlook for bricks and mortar retailers, due to a number of factors, CTC will be more immune to the threat of Amazon than investors anticipate: CTC has excellent retail locations and strong private label brands; consumers appreciate the 'save story' offered by CTC's high/low retail strategy; Amazon.ca already has a credible offering in key general merchandise categories yet CTC continues to perform well; and Canadians are proving hesitant to adopt online shopping habits."

Methanex Corp. (MEOH-Q, MX-T), "outperform" rating, $70 (U.S.), consensus: $59.50

Analyst Joel Jackson: "MEOH is an attractive FCF [free cash flow] generator as a robust methanol dynamic is persisting, with strong above-GDP demand (Chinese methanol to olefins, and other derivatives) set to balance or outpace supply over the mid-term and the Chinese cost curve providing reasonable floor support. Few commodities we look at have such a compelling supply/demand and structural dynamic currently. With MEOH's capex program completed (except for quick payback debottlenecking in Chile), we see sizable FCF potential and a continued strong share repurchase pace."

Suncor Energy Inc.(SU-T), "outperform" rating, $56 target, consensus: $51.14.

Mr. Ollenberger: "We believe that Suncor is uniquely positioned among its global integrated and North American peers by its ability to harvest cash flow from legacy investments in the oil sands and its best-in-class downstream operations. This should allow the company to return more cash to shareholders through a combination of dividend growth and share buybacks over the next several years. We believe that Suncor offers an attractive riskadjusted return for investors."

Four stocks were chosen for the catalyst category"

Cameco Corp. (CCO-T), "outperform" rating, $15 target, consensus: $14.29.

Analyst Alexander Pearce: "Cameco is our preferred name in the uranium sector. Despite some challenges, including the CRA and TEPCO disputes and McArthur River suspension, we believe its high-quality asset base and favourable contract book put it in good stead to weather a potentially protracted recovery in the uranium price whilst also capitalizing on any swifter recovery. Its size and liquidity make it one of the few ways larger investors can gain uranium exposure. Looking ahead, with the uranium market expected to enter a period of sustained undersupply this year, we expect greater support for the uranium price and thus Cameco's share price."

Ivanhoe Mines Ltd.(IVN-T), "outperform" rating, $8 target, consensus: $7.16.

Analyst Andrew Mikitchook: "Ivanhoe Mines offers investors exposure to catalyst-driven leverage on several world class development assets for copper, zinc, and platinum metals on the African continent. The lead Kakula-Kamoa high-grade copper project in particular is already among the largest undeveloped projects worldwide and is continuing to expand in scale, with the next resource update due in early 2018, followed by a PEA and a Kakula Main PFS."

Keyera Corp.(KEY-T), "outperform" rating, $43 target, consensus: $42.89.

Analyst Ben Pham: "We believe Keyera is poised to deliver upside to growth expectations as it executes on a $1.7-billion secured program, which should drive rising free cash flows and dividend growth through 2019, while at the same time increasing take-or-pay exposure. Marketing weighed on KEY performance during 2017, with shares down 8.5 per cent compared to the midstream group at down 1.5 per cent, but with management expecting 'significantly' higher Marketing margins over the next two quarters, we would look to use the pullback as an opportunity to accumulate shares."