Huyangshu
The ouster of the energy-friendly Conservatives does not appear to have fazed oil-patch investors, despite expected regulatory changes under the incoming Liberal government.
In fact, the immediate market reaction to Monday's federal election results was a positive one, with the energy component of the S&P/TSX composite index registering a 2.2-per-cent jump in Tuesday morning trading. Other segments of the market, such as construction stocks, bounced even higher in anticipation of increased infrastructure spending.
The absence of pessimism in the Canadian energy market was notable considering the Liberal Party's campaign platform, which promised to reduce carbon emissions and energy sector subsidies.
"There is going to be a shift in the political backdrop," said Craig Fehr, an investment strategist at Edward Jones in St. Louis, Mo. "But I think the key influences on that industry are outside of the political sphere."
The energy space is guided much more by the forces of supply and demand and the prospects for global economic growth, he said. And on that front, some investing professionals again see opportunities in oil and gas stocks.
"It's our view that we will see a global cyclical recovery, and I think that's going to bode well for a lot of the Canadian equity market," said Garey Aitken, chief investment officer at Franklin Bissett Investment Management in Calgary. "But prices are discounting such a dire scenario that there are good opportunities from here."
Since crude oil benchmark prices slid from their highs set in July, 2014, the energy sector of the Canadian index has dropped in value by 35 per cent, with the market pricing in little chance of a revival.
And at those sale prices, energy stocks represent an attractive long-term bet on economic growth, Mr. Aitken said. As co-lead portfolio manager of the $3-billion Franklin Bissett Canadian Equity Fund, Mr. Aitken is overweight on the energy sector, and currently has an emphasis on midstream and pipeline stocks including Enbridge Inc., Keyera Corp., TransCanada Corp. and Inter Pipeline Ltd., which he said are somewhat less sensitive to commodity prices.
"We're maybe in the first inning of a real trend reversal in Canada," Mr. Aitken said.
It could take a considerable amount of time for the pall to lift from the energy patch and for contrarian investors to realize gains off the beleaguered sector. Long-term global growth, however, remains a viable, investable theme, Mr. Fehr said.
In the shorter-term, energy stocks will at least be relieved of unfavourable year-over-year comparisons relatively soon, he said. "The profits in the energy and materials space are going to remain under a tremendous amount of pressure. But eventually we'll get out from underneath these tough [comparisons] on a year-over-year basis."
Mr. Fehr said he favours large integrated energy producers such as Suncor Energy Inc., Cenovus Energy Inc. and Canadian Natural Resources Ltd.
Aside from energy, other stocks that have advanced since the election are likely to directly benefit from federal policy changes. Prime-minister-designate Justin Trudeau pledged $25-billion in budget deficits over the next three years as a countermeasure to recent Canadian economic weakness. And he said his government would double infrastructure spending to $125-billion over the next decade, making construction and engineering stocks the obvious beneficiaries, said Ryan Lewenza, a strategist with Raymond James.
Stocks including SNC-Lavalin Group Inc., Stantec Inc., WSP Global Inc., Bird Construction Inc. and Aecon Group Inc. jumped by anywhere from 4 per cent to 10 per cent in postelection trading. All remain up since Monday's market close.
Mr. Lewenza said his firm owns shares of WSP Global in its dividend portfolio. "We're looking at adding more as a result of this election."
Tim Shufelt