Skip to main content
investor newsletter

BMO chief investment strategist Brian Belski believes that the pace of the U.S. equity market rally is unsustainable and that as a result, the TSX will outperform the S&P 500 in the coming months.

Mr. Belski’s most recent research report outlined how U.S. markets are broadening out – returns are less driven by megacap technology companies and more determined by sectors with slower profit growth rates – and so performance of the S&P 500 will likely be choppy and flat in the coming months.

BMO’s analysis of market history shows that domestic stocks have been able to post solid returns and outperform U.S markets when they are rangebound. Since 1990, S&P/TSX Composite Index returns have exceeded the S&P 500 by 4 percentage points when the latter was relatively trendless. Domestic stocks outperformed 61 per cent of the time.

In addition, the TSX has strong representation in market sectors like energy and financials where relative performance is improving and valuations are below historical averages. The strategist is particularly interested in communications services and real estate stocks where underperformance is significant relative to history.

Mr. Belski developed a stock screen to uncover contrarian buying opportunities with the biggest upside potential if domestic stocks begin to outperform. TSX stocks with market capitalizations above $600-million were filtered to find those with year-to-date price changes ranging between a gain of 10 per cent and a loss of 20 per cent, less than half of analyst earnings revisions were positive, forward price to earnings ratios were below 20 times, and less than 50 per cent of analyst ratings were buys.

The end result is a list of 18 companies representing what BMO calls “Canadian True Contrarian” stocks. These are, in alphabetical order: BCE Inc., Birchcliff Energy Ltd., Bank of Nova Scotia, Cogeco Communications Inc., Canadian Imperial Bank of Commerce, Canadian National Railway Company, Capital Power Corporation, CT REIT, Canadian Tire Corporation, Canadian Utilities Limited, Dream Office REIT, Empire Co. Ltd., Enghouse Systems Limited, Canada Goose Holdings Inc., H&R REIT, IGM Financial Inc., Labrador Iron Ore Royalty Corp, and Richelieu Hardware Ltd.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Extendicare Inc. (EXE-T) As a big segment of the population reaches their later golden years, long-term care is a burgeoning sector that may offer some opportunities, say The Contra Guys’ Benj Gallander and Ben Stadelmann. This stock pays a healthy dividend and could produce some nice capital gains in the years ahead thanks to its growing assets, they say.

The Rundown

Rising commodities are lifting stocks, but not profits. That could be a problem

Commodity prices have been rallying over the past six weeks, but the share prices of major metals producers now face a couple of significant hurdles: high valuations and a challenging earnings season. David Berman reports. Meanwhile, Philip MacKellar of The Contra Guys argues Pan American Silver Corp. (PAAS-T) is the most interesting of the precious metals stocks right now that the newsletter recommends.

How much will you pay in investment fees over your lifetime?

You may or may not know how much you’re paying for investment advice. But you are almost certainly not aware of how quickly those fees can add up when saving for major goals like retirement, says actuary Frederick Vettese. He has a vivid chart to prove it.

Negative equity/bond correlation is positive for 60-40 portfolio

Correlations between U.S. stocks and bonds are weakening and in some cases turning negative for the first time in almost a year, breathing new life into the standard “60-40″ investment portfolio, reports Reuters.

Others (for subscribers)

Number Cruncher: 15 U.S. quality stocks adapting to ever-changing interest landscapes

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: Large shareholders are buying these three securities

Globe Advisor

What to know as RRSP reporting measure takes effect

How to invest in gold as it shines again

Are you a financial advisor? Register for Globe Advisor ( for free daily and weekly newsletters, in-depth industry coverage and analysis.

Ask Globe Investor

Question: I have a question about John Heinzl’s model Yield Hog Dividend Growth Portfolio. If he was to create a similar portfolio of U.S. stocks and exchange-traded funds what would he choose?

Answer: My model portfolio already has some U.S. exposure through the iShares Core Dividend Growth ETF (DGRO-A). In fact, the ETF has been the portfolio’s top performer, with a price gain of about 77 per cent since the portfolio’s inception on Oct. 1, 2017.

One drawback of DGRO, however, is its modest weighting of about 16 per cent in information technology stocks, which have been a key engine driving the market higher. If you are looking to add U.S. exposure to your portfolio, you may want to consider a traditional S&P 500 Index ETF that will give you a tech weighting closer to 30 per cent.

Another advantage is that some S&P 500 Index ETFs trade on a Canadian exchange in Canadian dollars, sparing you the expense of converting your loonies into U.S. dollars at your broker’s unfavourable exchange rate. Examples include the iShares Core S&P 500 Index ETF (XUS-T) and the BMO S&P 500 Index ETF (ZSP-T), both of which charge ultralow management expense ratios of 0.09 per cent. If you’re looking to control currency-related volatility, you can opt for the currency-hedged versions of these funds, which trade under the symbols XSP-T and ZUE-T, respectively.

In my personal accounts, I get all of my U.S. exposure through ZSP (which I can buy and sell commission-free through BMO InvestorLine; several other brokers also offer free ETF trades). I used to own individual U.S. stocks as well, but with so many great companies to choose from south of the border, I prefer ETFs for the simplicity and diversification they provide.

--John Heinzl (E-mail questions to

What’s up in the days ahead

Are emerging markets worth considering when hunting for juicy bond yields? Veteran fund manager Tom Czitron will share some thoughts.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Compiled by Globe Investor Staff

Interact with The Globe