The S&P/TSX Composite Index has staged an impressive comeback in the fourth-quarter, rallying 9.75 per cent as of the close on Dec. 5 with strong breadth in the market.
In fact, nine of the 11 sectors have gains of 10 per cent or more quarter-to-date, led by the technology, health care, industrials, and the consumer discretionary sector with price returns of 20.3 per cent, 18.3 per cent, 13.3 per cent and 12.7 per cent, respectively.
Just one sector is in negative territory – utilities- with a loss of 3.9 per cent.
Give this rapid recovery in the stock market, the TSX Index is now down less than 5 per cent in 2022.
According to Bloomberg, the S&P/TSX composite index is trading at a forward price-to-earnings (P/E) multiple of 12.5 times the 2023 consensus estimate – bouncing off of its 10-year low of just under 11 times set back in Oct. The Index is still trading below its 10-year historical average of 14.3 times.
With the Bank of Canada hiking interest rates six times since March, the multiple compressed rapidly in 2022. At the start of the year, the S&P/TSX Composite Index was trading at nearly 15 times forward earnings.
Anemic but positive earnings growth is forecast for the S&P/TSX composite index. The Street is currently expecting 2.5 per cent earnings growth in 2023.
To help investors navigate this challenging market, this report includes a link to a list of analysts’ target prices, recommendations, and forecast returns for all securities in the S&P/TSX Composite Index grouped by sector and ranked according to their expected price returns (excluding dividend and distribution income).
The posted target price for each security is an average of all available target prices from analysts. A target price typically reflects an expected share or unit price 12 months from now based on an analyst’s financial modelling, such as a discounted cash flow or sum-of-the-parts model. For the yield provided, Bloomberg calculates this figure by annualizing the most recent announced dividend or distribution value.
It’s important to note that high target prices, which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low.
Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.
All data is as of the close on Monday Dec. 5, 2022.
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