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Canadian Strategy Snapshot: COVID-19 Positioning and the Expected Canadian Recovery

 

Investment Strategy: COVID-19 Positioning and the Expected Canadian Recovery


Three Rational Canadian Scenarios to Cope With the Irrational and Unknown

The coronavirus (COVID-19 virus) crisis and the adjacent fear generated by its human tragedy have produced collateral economic and societal anxiety that is unprecedented to say the least. Furthermore, there is no denying the collapse of oil prices and the indefinite shutdown of the global economy have positioned Canadian economic and stock market forecasts with nearly impossible levels of uncertainty. As such, we believe traditional fundamental forecasting methods including, but not limited to, dividend discount, valuation reversion, and economic regression models are likely to be poor guideposts over the near term. Therefore, we believe it is prudent to suspend our CY2020 S&P/TSX price and earnings targets and shift to a rolling 12-month forward model. As markets become more rational, we believe the efficacy of point-in-time forecasts will follow suit. This malaise and anxiety will dissipate. When it does, there is no reason to believe that Canadian stocks will not return to fundamentals and see similar daily upside moves relative to the exacerbated weakness of the past few weeks.

Main Points:

Three Scenarios for Canadian Stocks

  1. COVID-19 Case: Next 1-3 months – Defense and COVID-19-centric Themes

  2. Base Case: Next 12-18 months – Rebound and Canada’s Role in the Recovery

  3. Secular Case: Next 3-5 Years – Early Stages of Global Re-synchronization

Transitioning Targets to 12-month Rolling – Staying the course and NOT panicking

  • S&P/TSX Price Target: 18,200; EPS: $1,020

  • Suspending CY2020 S&P/TSX Price and Earnings Targets

  • CY2020 targets will carry more merit in our view once the bottom and recovery take shape

FULL REPORT

 

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Brian Belski Chief Investment Strategist



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