BMO BMO chief equity strategist Brian Belski is all-but pounding the table on Canadian materials stocks.
“There is very little fundamentally that we do not like about the Canadian Materials sector. In fact, after nearly a decade of operational discipline, profit margins and profitability are near record levels and well above historical averages. Furthermore, cash generation has been strong as the sector continues to display consistent capital spending discipline resulting in the most robust distribution growth on record. We believe this trend can continue even as earnings growth decelerates and commodity prices soften. Indeed, on fundamentals alone, the Canadian Materials sector checks all our boxes - valuations are below historical averages, operating metrics are firmly above historical averages, cash generation is near record levels, cash is being returned to shareholders, debt to equity is well below historical average and capital spending remains moderate showing strong cost discipline. ... Furthermore, according to our work, the Canadian Materials sector’s strong exposure to gold stocks adds a level of tactical defense against periods of broad equity market weakness "