Bank of America BofA Securities quantitative strategist Ohsung Kwon laid out a compelling bull case for Canada in a report called A new regime: Buy Canada,
“A New Energy World Order (NEWO) is in play. Canada is a developed commodity player poised to benefit from the new regime … In June 2021, we highlighted a bull case for Canadian stocks (TSX 60) amid rising commodity prices and inexpensive valuations. Today, we believe the tailwind is even stronger and remain bullish on the TSX… Canada exports what’s scarce in the current environment. It is the fourth largest net exporter of crude oil (mostly to the US) and the fifth largest agriculture exporter (third for wheat). It also produces gold, potash, aluminium, uranium, coal, lead, zinc, etc., most of which are in shortage. Higher commodity prices mean more growth for Canada (but also more inflation) - see Canada Watch. Our economists expect Canada to see among the strongest GDP growth (+4.2% in 2022 and +3.1% in 2023), well above +3.3% and +1.8% in the U.S., respectively … Our Banks analysts are bullish on Canadian Banks (see their report on Canadian Banks) amid rising rates, with the policy rate expected to reach 3.5% (current 1.0%) by mid-2023 (two 50bp hikes followed by six 25bp hikes) … equity markets are assigning a record discount to the TSX 60 relative to the S&P 500 (Exhibit 7). We expect the valuation gap to narrow … '
Mr. Ohsung screened the domestic equity market for the most attractively valued stocks ranked by free cash flow to enterprise value – his favoured matric in late cycle environments. The list is long but here we go – Imperial Oil Ltd., Suncor Energy Inc., Canadian natural Resources Ltd., George Weston Ltd., Loblaw Companies Ltd., Magna International Inc., Canadian Tire Corp., Gildan Activewear Inc. , Cenovus Energy Inc., First Quantum Minerals Ltd., Pembina Pipeline Corp., Barrick Gold Corp., Open Text Corp., CCL Industries Inc., Shaw Communications Inc., Metro Inc., Alimentation Couche-Tard Inc., Dollarama Inc., Constellation Software Inc., Canadian Apartment Properties REIT, BCE Inc., Canadian National Railway Co., Nutrien Ltd., Agnico Eagle Mines Ltd. and Cameco Corp.
Analysts don’t use free cash flow for banks if you’re wondering why there are none listed.