There’s always a place for smart macro-driven calls, but the Canadian stocks that performed best in the first half of the year didn’t require keen insight into oil prices, interest rates, the U.S. dollar or even cannabis legalization.
Instead, ignoring experts and fear-mongers proved to be a far more profitable investing strategy.
Take a look at the top five performers in the first six months of 2018, and you may be startled by the diversity of the group. They come from four different sectors – energy, consumer discretionary, industrial and technology – which suggests these stocks are being driven more by stock-specific conditions than prevailing winds.
What’s more, these stocks made a mockery of expert opinions, either by rallying well above analysts’ target prices or, in some cases, forcing analysts to upgrade their lacklustre recommendations as the year progressed.
Let’s count down the top five.
5. Shopify Inc. (SHOP): Up 56 per cent
The technology company that makes software to help businesses sell online began the year in the cross-hairs of short-sellers − little wonder, given that Shopify has not yet reported an annual profit. After Citron Research raised concerns about the number of Shopify clients in October, it touched a nerve among investors: The company’s share plunged 20 per cent in a matter of days.
Other short-sellers appear to be circling. A recent report from Absurd Research argued that Shopify has difficulty in keeping customers: 77 per cent of customers leave its services within a year, it alleged. An analyst at Raymond James countered that the accusation is “ridiculous,” but not before the shares tumbled 10 per cent. Over the first half of the year, though, siding with short-sellers has been painful.
4. Stars Group Inc. (TSGI): Up 67 per cent
You can be forgiven for passing on this stock. The company, formerly called Amaya Inc., is a global consolidator in online gambling after snapping up giant PokerStars and agreeing in April to buy Sky Betting & Gaming. If this line of business wasn’t enough to keep you away − the popularity of online poker may have peaked years ago − perhaps the fact that its founder and two associates faced a trial earlier this year on allegations of insider trading would be a deal-breaker. (The accused pleaded not guilty, and the Quebec Court dismissed the charges last month.)
Analysts provided little incentive to look deeper. Though 67 per cent recommended the stock as a “buy,” the consensus target price in mid-January was below the actual share price, implying no return over the next 12 months.
3. Bombardier Inc. (BBD.B): Up 70 per cent
The train and plane maker ran into serious financial difficulty amid cost overruns associated with the development of its C Series single-aisle commercial jets. And an unresolved tiff with Boeing Co., which accused Bombardier of unfair trade practices, only deepened the gloom, especially after the U.S. Commerce Department sided with Boeing and slapped 220-per-cent duties on Bombardier’s exports.
A deal with Airbus, struck in 2017 but only finalized in June, provided some relief. But could Bombardier’s share price, down in the dumps for years, catch any momentum? Analysts’ relatively low consensus target price suggested it couldn’t. But it did.
2. Canada Goose Holdings Inc. (GOOS): Up 97 per cent
Add a trendy (and expensive) down-filled line of parkas to a trendy (and expensive) initial public offering in 2017, and you have the perfect setup for disappointment. But Canada Goose Holdings, which makes the eponymous winter coats you see so frequently in Canadian cities, has defied skeptics.
At the start of 2018, a consensus of analysts expected the shares to rise to $35 by the end of the year; six months later, the share price is now more than twice as high as this initial target.
1. MEG Energy Corp. (MEG): Up 111 per cent
Okay, this is one stock that has clearly benefited from the rebound in crude oil prices − which required the right macro call. However, MEG’s standout gains suggest that there’s more going on here. The oil producer has outperformed West Texas intermediate oil (up 23 per cent in the first half of the year), large oil producers such as Suncor Energy Inc. (up 15 per cent) and the pipeline-hampered S&P/TSX energy sector (up just 2 per cent).
At the start of the year, just 14 per cent of analysts recommended the stock as a “buy”; this number is now up to 50 per cent. Perhaps the fact that few experts believed in the stock sweetened the rebound − which is something investors should keep in mind for the second half of the year.
David Berman