{"id":493219,"date":"2024-09-24T13:01:56","date_gmt":"2024-09-24T17:01:56","guid":{"rendered":"https:\/\/www.investmentexecutive.com\/?p=493219"},"modified":"2024-09-24T11:03:16","modified_gmt":"2024-09-24T15:03:16","slug":"out-of-favour-stocks-and-sectors-create-opportunities","status":"publish","type":"post","link":"https:\/\/www.investmentexecutive.com\/soundbites\/equities\/out-of-favour-stocks-and-sectors-create-opportunities\/","title":{"rendered":"Out-of-favour stocks and sectors create opportunities"},"content":{"rendered":"

(Runtime: 5:00. Read the audio transcript<\/u>.)<\/a><\/p>\n

**<\/p>\n

The Canadian market is currently out of favour, but that could be good news for discerning investors, says Mary Crowe, vice-president, Canadian equities, with Beutel Goodman Investment Counsel.<\/p>\n

Crowe said out-of-favour markets are the perfect hiding place for undervalued sectors and stocks.<\/p>\n

\u201cOut-of-favour markets can create opportunities in individual names,\u201d she said. \u201cFocusing on individual stock attributes can lead you to find some gems, and that is when we get excited.\u201d<\/p>\n

Crowe said markets hate uncertainty, but value investing is all about being patient through periods of uncertainty and focusing on the fundamentals.<\/p>\n

\u201cThe Canadian market is currently out of favour, but we don’t invest in markets, we invest in stocks,\u201d she said. \u201cWe look for dislocations in the market that provide opportunities for prospective returns.\u201d<\/p>\n

She offered the example of Toronto-Dominion Bank, which has been out of favour for the past two years, under the shadow of two issues: potential CEO succession and fallout from its failure to prevent money laundering at its U.S. branches.<\/p>\n

\u201cTD has lost billions in market capitalization driven by these issues, with its valuation multiple compressed to a discounted level relative to peers,\u201d she said. \u201cWe believe the market is pricing in a Draconian outcome and represents an opportunity.\u201d<\/p>\n

She expects uncertainty around TD to lift soon, which should be viewed positively by the market, leading to stronger stock performance.<\/p>\n

\u201cTD remains a very strong franchise and generates substantial capital,\u201d she said. \u201cOver the long term, TD\u2019s high-quality franchise will produce good prospective returns.\u201d<\/p>\n

Another example, she said, is Calgary-based Tourmaline Oil, a well-capitalized, large-scale, low-cost producer of natural gas that should benefit from further liquified natural gas (LNG) development in Canada.<\/p>\n

\u201cGas is currently oversupplied and is out of favour, but supply and demand and pricing should improve with growing LNG offtake in Canada and the U.S. over the next three years,\u201d she said. \u201cTourmaline should benefit from improving natural gas prices. The company has a better-than-average balance sheet, is trading at a discount valuation, and we believe it represents an opportunity.\u201d<\/p>\n

She also sees opportunities in consumer discretionary and industrials, as well as in certain pockets of out-of-favour commodity sectors like real estate. In fact, her team was able to take advantage of uncertainty around commercial real estate last year, picking up Toronto-based Colliers International Group Inc. at a very attractive valuation.<\/p>\n

On the consumer discretionary front, she likes Valcourt, Que.\u2013based BRP Inc.<\/p>\n

\u201cThe larger the discount to business value, the more margin of safety the investment provides,\u201d she said. \u201cThis, combined with quality companies with strong balance sheets, should mitigate the potential loss of capital.\u201d<\/p>\n

She said while Canada is currently out of favour with international investors, it remains an attractive market with a stable political and legal system, and abundant natural resources.<\/p>\n

\u201cWe believe Canadian stocks remain an important component of many investment portfolios,\u201d she said. \u201cThere are many leading Canadian companies that provide global exposure and diversification through their business activities.\u201d<\/p>\n

She pointed out that a Beutel Goodman review found that a range between 9% to 31% in Canadian equities is optimal in a world-focused portfolio, depending on specific investor risk tolerance.<\/p>\n

\u201cThis is a greater allocation than Canada represents in the MSCI World Index, at about 3%,\u201d she said. \u201cIn our view, Canadian equities have demonstrated solid risk-adjusted returns over the long term.\u201d<\/p>\n

**<\/p>\n

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.<\/p>\n","protected":false},"excerpt":{"rendered":"

Mary Crowe of Beutel Goodman says patience in uncertainty and a focus on fundamentals is what value investing is all about<\/p>\n","protected":false},"author":177802,"featured_media":493216,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[74058,74051],"tags":[102330,2714],"yst_prominent_words":[2116,60766,19953,12958,12049,12028,10187,9012,7733,7679,6781,5382,5189,2234,2228,2222,1384],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/493219"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/177802"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=493219"}],"version-history":[{"count":4,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/493219\/revisions"}],"predecessor-version":[{"id":493338,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/493219\/revisions\/493338"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media\/493216"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=493219"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=493219"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=493219"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=493219"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}