Almost two years after our first review, it is remarkable how persistent are some of the favoured sectors and companies.
- Energy and Materials still receive the market's love, far outweighing what their tangible accounting factors would suggest. The market is looking forward to results that are even better than they are now for companies like Suncor (SU), Barrick Gold (ABX), Canadian Natural Resources (CNQ), Potash Corp (POT) and Goldcorp (G), the very same companies we listed in 2010. The promise is mostly yet to be fulfilled as these stocks' accounting results have not carried them much higher in the CRQ holdings. Potash Corp's latest just-released quarterly results show strong growth and a doubled dividend but analysts were described as disappointed in the Globe and Mail. Is this a case of over-optimism that will eventually be dashed? On the other hand, Encana (ECA) remains an unusual energy outlier, being far less valued in the market than its fundamentals indicate. Is this over-pessimism that will eventually be corrected? ECA recently attracted mention in the Globe and Mail as a stock meeting value investor criteria.
- Telecommunications companies BCE Inc (BCE) and Telus Corp (T) have been darlings on our list all along as well. They have crept ahead somewhat in the CRQ weightings but what is it that attracts investors so much? Perhaps the high dividend yield, the growth in dividends, the relative price stability of the stocks, lowish P/E of around 14? Time has yet to tell.
Again, it is largely a familiar continuing story.
- Financials continue to be vastly under-weighted, partly because of exclusion of major firms like Power Corp (POW), Fairfax Financial Holdings (FFH), Onex (OCX), Great West Lifeco (GWO) and partly because of troubled companies Manulife (MFC) and Sun Life (SLF). One thing that has changed is that big banks, with the one exception of Bank of Montreal (BMO), are now close in terms of market opinion and fundamental factors. BMO's market weight is still far below its fundamental weight - is that indicating a trading opportunity as it has started to move back into line with the other banks? Looking back, the market pessimism about Manulife seems to have been justified to a good degree, as the company's struggles have dragged it down on accounting measures reflected by CRQ. Looking forward, the question is whether those negatives have been overdone, since MFC's fundamentals still indicate a far stronger entity than the market estimates.
- Consumer Discretionary & Staples, as well as Utilities stocks still find no market favour as they receive much smaller market weighting. It is a surprise since Utilities like Emera (EMA), Fortis (FTS) and Canadian Utilities (CU) have gained good returns over the past year while the TSX has declined.
Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.