Analyst pessimism on Canadian stocks overdone: ‘Downgrades may have been too aggressive’

The biggest cuts have been in the energy and materials sectors, with analysts lowering their earnings outlooks for oil and gas companies by 67.1%.

Analysts have slashed their earnings outlooks for Canadian companies through the biggest margin because the recession, but market watchers think the pessimism is overdone.

S&P/TSX forward earnings estimates have came by more than 16% in the past three months, which makes it the biggest revision outside of a recession for Canadian stocks, note analysts at National Bank Financial.

\”The profit downgrades might have been too aggressive,\” said Ste?fane Marion and Matthieu Arseneau, economists at National Bank Financial, in a note to clients. \”The analysts see energy earnings falling around in the global credit crisis of 2008-09, and little if any acceleration in other sectors\’ earnings growth. We think this view is pessimistic.\”

The biggest cuts have been in the energy and materials sectors, with analysts lowering their earnings outlooks for gas and oil companies by 67.1%. That should come as no surprise given that oil prices have plummeted by more than 50% since last summer.

The cuts may seem gloomy, but market watchers observe that lower earnings forecasts by analysts could be a potentially bullish development for investors.

Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto, said all the recent cuts leave the doorway open to earnings surprises this year.

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