Skip to main content

Business Briefing ‘You really can make money’ on stocks outside of Canada’s Big 3 sectors: BMO on where to look

Briefing highlights

  • The ‘Other 8’ stock sectors
  • Stocks, loonie, oil at a glance
  • Economy churns out 67,000 jobs
  • Unemployment rises to 5.8 per cent
  • Canadian housing starts slow
  • From today’s Globe and Mail

The ‘Other 8’

Brian Belski has some advice for investors in Canadian stocks who focus on the three biggies: Take a look at other sectors.

“Yes, you really can make money in Canadian stocks that are not energy, materials or financials,” Bank of Montreal’s chief investment strategist said in his latest report.

“There are several great companies in Canada that we believe are typically overshadowed by the long-established reliance on the ‘Big 3’ for performance and ideas,” he added.

Story continues below advertisement

“In fact, our work shows that the ‘Other 8, Non-Big 3’ sectors can outperform and typically have outperformed during periods of range-bound commodities.”

The Big 3, Mr. Belski noted, now account for 62 per cent of the S&P/TSX Composite Index, in line with their three-decade average but down from their peak at 79 per cent in 2011.

The ‘Other 8’: TSX weight of sectors

outside the ‘Big 3’

80%

70

60

50

40

30

20

1987

1995

2003

2011

2019

SOURCE: BMO CAPITAL MARKETS

The ‘Other 8’: TSX weight of sectors

outside the ‘Big 3’

80%

70

60

50

40

30

20

1987

1991

1995

1999

2003

2007

2011

2015

2019

SOURCE: BMO CAPITAL MARKETS

The ‘Other 8’: TSX weight of sectors outside the ‘Big 3’

80%

70

60

50

40

30

20

1987

1991

1995

1999

2003

2007

2011

2015

2019

SOURCE: BMO CAPITAL MARKETS

But don’t ignore the others, which include industrials, consumer discretionary, communications, consumer staples, information technology, utilities, real estate and health care, Mr. Belski recommended.

The outperformance of stocks outside the Big 3 has been consistent when commodity prices haven’t been in a super cycle, Mr. Belski said.

“Indeed, we continue to believe that commodity prices (especially WTI), are likely range-bound for an extended time,” he added, referring to West Texas intermediate, the U.S. crude benchmark.

“As such, we believe many of the best opportunities within Canadian equity markets will likely be from non-Big 3 sector names.”

Thus, Mr. Belski presented his “anything but the Big 3 portfolio,” a model “designed to encapsulate the strength of Canadian companies that are not energy, materials and financials.”

The total return of this anything but portfolio has lagged the broader composite over the three months ending Jan. 31, at 3.7 per cent versus 4.3 per cent.

But on a 12-month basis, it’s on the winning side, 2.5 per cent to 0.5 per cent. And since its 2017 inception, the track record is 6.2 per cent to 2.9 per cent.

Markets faltered last year, remember, but the anything but group fared better, losing 5.5 per cent to the broader Toronto market’s 8.9 per cent.

The top five holdings include Alimentation Couche-Tard Inc., Class B, BCE Inc., Canadian Pacific Railway Ltd., Rogers Communications Inc., Class B, and Waste Connections Inc.

All are rated “outperform.”

As for the broader TSX, Mr. Belski continues to project the TSX will end the year at 17,000.

Story continues below advertisement

Read more

Markets at a glance

Read more

Job creation surges

Canada’s economy churned out 67,000 new jobs in January, with unemployment rising to 5.8 per cent as more job-seekers went looking, Statistics Canada says.

These monthly labour market reports can be volatile, and often raise eyebrows among economists, and today’s job-creation numbers were well above what was expected.

Both full- and part-time positions rose, the federal agency said.

The unemployment rate inched up from 5.6 per cent in December.

Job gains were boosted by Ontario, in particular, where employment rose by 41,000.

“Over all, it's been a good day for readings on the Canadian economy,” said CIBC World Markets senior economist Royce Mendes.

Story continues below advertisement

“That said, first-quarter growth is still setting up to be somewhat weak given what we know is happening in the oil patch. So while today’s data will be bullish for the Canadian dollar and bearish for fixed income, the Bank of Canada is still likely on the sidelines for the first half of 2019.”

Read more
More news
From today’s Globe and Mail
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Discussion loading ...

Cannabis pro newsletter