The performance of Canada’s economy, equity market and currency has lagged their U.S. counterparts for a while, which is why so many analysts are more bullish on companies down south.
But many U.S. companies are exporters that face headwinds due to the greenback’s strength, while the Canadian dollar’s weakness, despite its recent rally, is prompting some investors to turn more bullish on the commodity space and Canada by extension.
David Taylor, chief investment officer at Taylor Asset Management, suits that category. He has increased his contact with the Canadian equity market within the Taylor Partners Fund and other mandates including core mutual funds for IA Clarington.
“It’s harder to locate great value within the U.S. without really paying up for quality,” Taylor said. “We’re looking for great opportunities and are tending to locate them in Canada.”
Investors don’t need to make a currency call to see why this will make sense. Many Americans have seemingly given up on Canadian stocks, as evidenced through the market’s relative underperformance, so valuations alone create a pretty good case.
A large amount of the lag in Canada has to do with oil prices. Taylor and senior analyst Michael Willemse were very bullish on oil when it was trading at US$42 per barrel, and continue to see opportunity, specifically in industries which are less directly tied to energy prices.
One such holding is SNC-Lavalin Group Inc., an engineering and construction company with a lot of exposure to infrastructure projects as well as the energy sector.
They’ve owned SNC’s stock for some time, but doubled up following the RCMP laid corruption and bribery charges in mid-February. SNC faces a ban on bidding for government contracts for 10 years if convicted, but Taylor thinks the stock has already been reflecting this negative outcome, which might end up being softened anyway.