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The first half of 2016 has been a volatile but profitable period for many investors holding positions in Canadian stocks.

During the first half of the year, the S&P/TSX composite index has delivered a price return, excluding dividends, of 8 per cent with seven of the 10 sectors closing in positive territory. Leadership came from a combination of cyclical stocks as well as defensive stocks. The top four performing sectors in the Index were materials, energy, utilities, and telecom.

Another market segment that performed exceptionally well were real estate investment trusts (REITs). The S&P/TSX Capped REIT Index advanced 18 per cent in the first half of 2016.

Looking forward, what securities do the experts, analysts on the Street, believe will deliver the highest returns?

In a two-part feature, we will reveal three stocks from each sector within the S&P/TSX composite index that are anticipated to deliver solid returns over the next year, and, in the following feature, we will list three stocks from each sector within the S&P/TSX SmallCap Index.

We identified securities with the highest expected price returns using the average 12-month target prices from analysts as indicated on Bloomberg as of June 30. In addition, underperforming stocks, those with negative year-to-date returns, were excluded.

The attached table lists these securities.

First off, in the consumer discretionary sector, the gaming sub-sector was a dominant theme with Intertain Group and Amaya taking the top two positions. Another gaming stock, Great Canadian Gaming, came in four place with a forecasted one-year price return of 24 per cent, narrowly missing appearing on the list.

Intertain is a favoured stock on the Street. According to Bloomberg, the one-year price target of $23.29 is based on eight buy recommendations. Last week, management provided investors with an update on its strategic review stating that acquisition discussions continue to advance, "Since our last update, the Special Committee, through its advisers, is continuing its process in connection with the third-party acquisition of all the shares of Intertain. The Brexit vote in the UK last week has obviously caused significant disruption in the markets in both the UK and elsewhere. Despite the Brexit vote, however, further discussions are expected to take place. Since the initial round of offers we received in May, work to complete due diligence in relation to the process has continued, and multiple meetings with members of management and our advisors to discuss due diligence matters, our businesses, and to explore potential integration plans have been held."

BRP is another consumer discretionary stock that comes highly recommended by analysts with 11 buy recommendations and two hold recommendations. The share price advanced just 4 per cent during the first half of the year; however, the stock price may gain traction in the second half given that the majority of the company's earnings are realized in its third and fourth quarters.

In the consumer staples sector, the anticipated leaders are Cott, Maple Leaf Foods, and in a tie for third place are George Weston and Loblaw. For conservative long-term investors, Loblaw may represent a solid core holding to consider owning given its steady earnings growth. Furthermore, management is committed to returning capital to shareholders. In May, management announced a 4 per cent dividend increase. In addition, the company has been actively repurchasing shares.

Turning to the energy sector, the leading securities are Whitecap Resources, Advantage Oil & Gas, and Secure Energy Services, all with expected one-year returns of around 30 per cent. This sector has an abundant number of stocks with attractive returns forecast. Approximately 65 per cent of stocks in this sector have forecasted returns of 10 per cent or higher. Only three stocks out of 49 securities in the sector have negative price returns forecasted, with the worst stock anticipated to decline just over 2 per cent. In other words, according to analysts on the Street, stocks in this sector have little downside risk but plenty of upside potential over the next year.

Next up are the financials. Home Capital Group, Dream Office REIT, and Alaris Royalty are securities with high expectations from analysts. Of the three securities, Alaris' share price realized the highest price return during the first half of the year, climbing 22 per cent. Looking forward, in addition to a 17 per cent price return anticipated for Alaris Royalty over the next 12 months, Alaris has an attractive dividend yield of over 5 per cent. Furthermore, Alaris has increased its dividend ten times since April 2010. The company has a diversified revenue stream, with a long-term objective of having no single revenue stream represent more than 10 per cent of its revenue. The share price can experience volatile moves, creating opportunities for investors to accumulate shares on weakness.

The health care sector was the worst performing sector in the index in the first half of the year. There are only five securities in this sector in the S&P/TSX composite index and four of them delivered negative returns during the first half of the year. As a result, there is only one security on our list, Chartwell Retirement Residences.

Chartwell's unit price rallied 24 per cent during the first six months of the year. Chartwell is delivering modest but steady same property net operating income growth with its occupancy rising. In addition, demographics is a positive for Chartwell with the aging population. However, analysts see this security as fully valued with limited additional price upside over the next year.

That being said, for investors wanting to hold a position in this sector within their diversified portfolios, ProMetic Life Sciences, while declining 17 per cent during the first half of the year, and as a result not appearing on our list, is anticipated to more than recover this loss. The 12-month average target price is $5.59, which is based on nine buy recommendations. This target implies the share price will just about double over the next year.

Turning to industrials, New Flyer Industries, CAE and MacDonald Dettwiler & Associates take the top spots.

New Flyer is a stock I recommended at the start of the year, on January 4, when the stock price was around $28 and since then, the share price has rallied over 40 per cent. This stock has a one-year price target of $48.50 based on six buy recommendations, suggesting additional double-digit gains for this industry leader.

Amongst the key drivers for this transportation stock are 1) Cost synergies of approximately $10-million (U.S.) per year from its acquisition of Motor Coach Industries announced last November 2) Earnings growth. The consensus earnings before interest taxes, depreciation and amortization is $286-million (U.S.) in 2016, up from $151-million reported in fiscal 2015 3) Management's commitment to its dividend, announcing two dividend hikes in 2015. Its dividend yield is over 2 per cent and 4) Continued contract awards. For instance, last month, the company announced several contract wins, one for up to 550 transit buses from Southeastern Pennsylvania Transportation Authority, another for up to 485 transit buses from the Connecticut Department of Transportation, and a third for up to 75 transit buses from the Lane Transit District in Eugene, Oregon.

The technology sector is the second worst performing sector in the first half of 2016. Top expected performers are DH Corp., Open Text Corp., and Sierra Wireless. Amongst these stocks, only DH has a double-digit gain forecasted.

Within the materials sector, Nevsun Resources, Eldorado Gold and Lundin Mining made the grade.

The defensive telecom sector only contains four stocks in the S&P/TSX composite index. Returns are expected to be muted, ranging from a gain of 2 per cent to a loss of 3 per cent. In other words, analysts view these stocks as fully valued. After all, this sector rallied over 12 per cent in the first six months of the year. Telus and Rogers are the only telecom stocks with positive forecast one-year price returns of 2 per cent and 1 per cent, respectively, as of June 30.

Finally, the utilities sector, which has been an excellent area to be invested in during the first half of the year with 12 of the 14 utility stocks in the S&P/TSX composite index delivering positive price returns, the majority of which were double-digit price gains. Looking forward, gains are anticipated to be more modest with leadership expected from Algonquin Power & Utilities, Northland Power, and Innergex Renewable Energy. Regarding Algonquin, the proposed acquisition of Missouri-based utility Empire District Electric Co. will be transformational for the company. Due to the acquisition, the consensus earnings before interest, taxes, depreciation and amortization (EBITDA) estimate is $450-million in 2016, soaring to $790-million in 2017.

12-monthClosing PricePotential
target price30-JunPrice Return (%)
Consumer Discretionary
IT-TIntertain Group Ltd $23.29 $10.45 123
AYA-TAmaya Inc $28.29 $19.82 43
DOO-TBRP Inc $25.91 $20.67 25
Consumer Staples
BCB-TCott Corp $23.54 $18.06 30
MFI-TMaple Leaf Foods Inc $31.50 $27.59 14
WN-TGeorge Weston Ltd $126.71 $111.81 13
L-TLoblaw Cos Ltd $78.08 $69.11 13
Energy
WCP-TWhitecap Resources Inc $13.15 $9.88 33
AAV-TAdvantage Oil & Gas Ltd $9.43 $7.22 31
SES-TSecure Energy Services Inc $11.29 $8.83 28
Financials
HCG-THome Capital Group Inc $40.03 $32.02 25
D.UN-TDream Office REIT $21.93 $18.58 18
AD-TAlaris Royalty Corp $33.50 $28.67 17
Health Care
CSH.UN-TChartwell Retirement Residences $15.75 $15.77 0
Industrials
NFI-TNew Flyer Industries Inc $48.50 $40.23 21
CAE-TCAE Inc $17.84 $15.61 14
MDA-TMacDonald Dettwiler & Associates Ltd $96.20 $84.27 14
Information Technology
DH-TDH Corp $42.00 $32.11 31
OTC-TOpen Text Corp $80.97 $76.39 6
SW-TSierra Wireless Inc $22.58 $21.89 3
Materials
NSU-TNevsun Resources Ltd $6.10 $3.79 61
ELD-TEldorado Gold Corp $7.31 $5.81 26
LUN-TLundin Mining Corp $5.47 $4.36 25
Telecommunication Services
T-TTELUS Corp $42.41 $41.60 2
RCI.B-TRogers Communications Inc $52.85 $52.30 1
MBT-TManitoba Telecom Services Inc $37.83 $37.93 0
Utilities
AQN-TAlgonquin Power & Utilities Corp $13.31 $11.89 12
NPI-TNorthland Power Inc $23.80 $22.20 7
INE-TInnergex Renewable Energy Inc $15.50 $14.49 7
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