Any Winners on the Downward Stock Market?

A few weeks back, we wrote about the difficult state of North American stock markets over the past year and a bit (January 1, 2015 to beginning of 2016). But as the saying goes, every cloud has a silver lining, and we’re certain that if one looks closely enough, it will be evident that not all sectors of the market are struggling. To determine this, we consider different economic sectors in Canada and see which ones have actually provided a decent return over the past year and a bit.

In the table below we compare the general market index for the Toronto Stock Exchange (S&P/TSX Composite Index) with the subsectors that make up the general index. Overall, the general Composite Index has fallen in value by almost 10% from January 1, 2015 to March 4, 2016. However, it is evident that not all subsectors of the general index have followed a similar pattern. There are three industry (GIC) sectors which have actually provided very good returns since the beginning of 2015. These sectors are: Consumer Staples (up 16.9%), Telecommunication Services (up 9.4%) and Information Technology (up 8.3%). These sectors together amount to slightly more than 13% of the overall Canadian stock market., UCU Wealth Strategies Group, UCU Wealth Strategies Group

Let’s now consider the winning sectors and see how particular stocks within these sectors performed. In particular, the S&P/TSX Capped Consumer Staples Index is comprised of ten stocks and many of them have shown robust performance of late, but has really been driven by two stocks in particular, supported by a healthy overall growth rate of retail trade in Canada, an increase of 2.2% to in 2015 to $516 billion.

This sector has been led by Metro Inc. (MRU), whose shares have risen almost 37%. Metro Inc is a distributor of groceries and pharmaceutical products through a network of supermarkets, discount stores and drugstores. The company’s market capitalization exceeds $10 billion.

Alimentation Couche-Tard Inc. (ATD.B) has returned 20.0% since the beginning of 2015. This company operates convenience stores throughout Canada, but mainly in Quebec. The company’s market capitalization exceeds $24.5 billion.

The growth of the Telecommunication Services sector shares has happened despite the slow growth of Canada’s Telecommunications industry, which grew by a mere 0.4% in 2015. The best performing stock in this sector has been Manitoba Telecom Services Inc. (MBT) which returned 23.0% since the beginning of 2015. Much of the company’s improved earnings reflected the sale of its Allstream division to Zayo Group Canada Inc. Manitoba Telecom Services Inc. offers local access, long distance, data and other telecom-related services to residential and business customers in Manitoba. Its market capitalization is $2.6 billion.
Rogers Communications Inc. (RCI.B) was the other strong stock in this sector, having returned 10.4%. Rogers Communications Inc is a communications and media company. Its market capitalization is about $20.1 billion.

These two companies were the best performers in the Telecommunication Services Index.
Canada’s Information Technology has been among the strongest sectors of the economy. The Commercial Software Price Index (CSPI) increased 1.2% in January 2016 compared with the previous month. Year over year, the CSPI was up 11.0%. These compare favorably to producer price growth in Canada in January: 0.5% growth month over month and 1.7% growth year over year.

In the Information Technology Index, the strongest performers have been Constellation Software Inc (CSU) and CGI Group Inc. (GIB.A). Constellation’s stock grew by over 50% since January 2015. The company is engaged in the development, installation and customization of software for the public and private sectors in Canada, USA, UK and Europe. Its market capitalization is $11.2 billion. CGI, with a market capitalization of $15.7 billion, saw its stock rise by 27.9% over the period in question. CGI provides information technology consulting.

These examples show that stocks in certain sectors can provide enviable performance despite the slow economy and weak stock markets. In such markets, stock pickers have advantages over market indexers. At the same time, it should be noted that past performance is not an indication of future performance, and the stocks, which we have presented here, may start dropping in price at any time. As usual, we advise anyone interested in stock opportunities to seek professional guidance from certified investment advisers.

Michael Zienchuk
Investment Advisor, Credential Securities Inc.
Manager, Wealth Strategies Group
Ukrainian Credit Union
416-763-5575 x204

Mutual funds and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently, and past performance may not be repeated. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund.