Keith Richards, president and chief portfolio manager, ValueTrend Wealth Management
FOCUS: Technical analysis
Top Picks: Freeport-McMoRan, Generac Holdings, Cash
MARKET OUTLOOK:
The Canadian stock market may take a turn for the better after 15 years of underperformance against the S&P 500 Index. Four reasons behind this thought:
- A change in the government: In 2025, a fiscally prudent leader is highly likely to be elected. Over the past decade under current policies, Canada moved from amongst the strongest economies, to the weakest country in the G-7 in terms of debt/capita, gross domestic product (GDP) growth, productivity, and other metrics. That should change with new leadership.
- Valuations: Leading Canadian sectors such as energy and certain materials and the banks are cheap. The TSX itself is also trading at a lower multiple than the S&P 500.
- Sector rotation: Sometimes the worst performing stocks and sectors in one year become the best performers in the following year. For example, the “dogs of the Dow” theory has outperformed markets in most years. In 2024, utilities, materials, energy and staples were the worst performers. These sectors represent 36 per cent of the S&P/TSX Composite Index. Plus, let’s not forget Canadian financials, which represent over 30 per cent of the composite. They are strongly impacted by how these four sectors.
- S&P sector concentration: The S&P 500 Index is concentrated in expensive stocks. These stocks, nicknamed the Magnificent Seven, are Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta and Tesla. In 2024, the group saw a 67 per cent increase in collective stock prices. The Magnificent Seven represents a ridiculous 35 per cent weighted in the SPX “500” stock index. While it can be argued that the group of stocks are fundamentally in-line with average valuations compared to growth, one can also question whether that growth will continue in the future.
Whatever the case, one could certainly argue that, although in an uptrend, the Magnificent Seven (MAGS) may have a bit more downside or consolidation before a return to the trendline. Technically, they aren’t cheap, for sure.
All of this to say the TSX may “catch a bid” in 2025.
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TOP PICKS:
Freeport-McMoRan (FCX NYSE)
Copper/metal mining. At the bottom of a trading range. Seasonally strong in first quarter. Our target is $45-$55.
Generac Holdings (GNRC NYSE)
Generators. Pulled back to trendline. Opportunistic.
Cash
We like the TSX, per my opening comments. But we are also fairly cautious in the near term – we hold 13 per cent cash in our equity platform. Looking for a better entry point for our cash.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| FCX NYSE | Y | Y | Y |
| GNRC NYSE | Y | Y | Y |
PAST PICKS: October 28, 2024
Northwest Healthcare Properties (NWH-U TSX)
- Then: $5.37
- Now: $4.46
- Return: -17%
- Total Return: -15%
PayPal Holdings (PYPL NASD)
- Then: US$83.59
- Now: US$82.64
- Return: -1%
- Total Return: -1%
Arc Resources (ARX TSX)
- Then: $23.59
- Now: $27.27
- Return: 16%
- Total Return: 16%
Total Return Average: 0%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| NWH.U TSX | Y | Y | Y |
| PYPL | Y | Y | Y |
| ARX | Y | Y | Y |