Throughout the year, energy and commodity prices may have a bigger impact on the TSX than on other global markets.
But “non-resource sectors may offer the most interesting opportunities,” and they’ll continue to do so until we see re-acceleration of global growth and a supply-demand rebalance of oil, says Craig Jerusalim, portfolio manager on the Canadian Equity team at CIBC Asset Management. He co-manages the Renaissance Diversified Income Fund.
The healthcare sector will be a top performer in Canada, he adds. In particular, he’s looking at Valeant Pharmaceuticals International: many analysts expected the company to shift from an acquisition strategy to a debt-reduction strategy after its bid for Allergan Inc. failed at the end of 2014, but Jerusalim is optimistic.
“A stronger balance sheet and improved stock price will embolden Valeant CEO Michael Pearson to continue to execute his growth-by-acquisition strategy. It’s on its way to becoming a $150-billion-market-cap, top-five pharmaceutical company.”
At the same time, Jerusalim is optimistic about oil prices rising this year. “I’m not too concerned the price is going to stay low,” he says, adding, “The world isn’t discovering new sources of low-cost production. There’s a lot of oil out there [now] but it costs a lot of money to produce. So that’s going to support [a higher] longer-term price.”
He anticipates prices to hover between a reasonable average of $70 to $80 per barrel in 2015.
Looking back at 2014
The TSX surprised Jerusalim in 2014. Not only did a gold rally kick off the year, but markets also hit record highs in September.
The oil price collapse at the end of the year was the biggest disappointment, he says, since high-quality producers fell alongside the price of oil. “They have the strongest balance sheets, large scale resources and low costs, but they fell nearly as much as the companies with unsustainable business models.”
For instance, companies such as Suncor and Canadian Natural Resources Ltd. have withstood the low-price environment so far, but they’ve lost between 30% and 40% of their value since the summer energy peak.
The biggest positive of last year, he adds, was the strengthening of consumer staples. “Grocers and retailers exceeded all expectations, returning upward of 30% to 50% in some cases.” That was due to reduced investment in resources across Canada, as well as “creative acquisitions and improving fundamentals.”