National Bank Financial strategists are upbeat about the economic recovery, and that means they're tweaking their recommended sectors to take advantage of the opportunities.
"The global economic backdrop has improved markedly in recent months and our long-held view that the U.S. would emerge from recession after 20 to 22 months is no longer just an assumption; there is now overwhelming evidence to suggest that economic growth has resumed in the third quarter," said Stefane Mario and Pierre Lapointe, in a note.
However, as this growth gets under way, different sectors will benefit. As a result, the strategists have cut their recommendation on Canadian financials to "market weight" from "overweight" now that the banks are just 17 per cent below their peak in 2007. By comparison, the global banking index is still 49 per cent below its peak.
"We expect [Canadian]financials to continue rising in the coming months, but other sectors could deliver bigger returns," they said.
In particular, they like energy - a sector they raised to "overweight."
"First, demand for energy is poised to pick up in a global recovery," they said. "Second, stock prices in the sector have yet to reflect the recent rise of oil prices."
Within this broad sector, they like exploration and production, equipment and services and drilling industries. However, they shy away from oil and gas refining, marketing and storage and transportation.
"These industries consist mostly of pipelines or income trusts that are very interest-sensitive," they said. "Rising interest rates over the next six months are likely to put pressure on these industries."
David Berman