Desjardins Securities’ Equity Research team revealed its 2022 outlook and top stock picks in a research note released Monday before the bell.
Expressing caution as the Omicron variant continues to spread and bring volatility to global stock markets, the firm selected 30 equities possessing “the best growth prospects and/or the largest number of expected catalysts” for the next calendar year in 2022.
“While the end of 2021 has served to highlight the ongoing threat of COVID-19 with a surge in cases related to the Omicron variant, prompting new restrictions and the accelerated rollout of booster shots, the economy and markets have proven to be relatively buoyant,” the firm said. ”The TSX reached an all-time high in November, up ~25% on the year before retreating on the back of Omicron fears, with a year-to-date return of close to 19% as of mid-December, well above the long-term average of approximately 9 per cent.
“Following a massive recovery in commodity prices, energy led the way with a remarkable year in 2021 after a very tough 2020. Honourable mentions go to the financial and real estate sectors. While 2022 could be more muted in terms of performance given an expected rough start—with Omicron, capacity restrictions and ongoing labour and supply chain issues, less stimulus, expected interest rate hikes to combat inflation, and a tough comparison vs 2021 — we do expect that navigating toward a full recovery post-pandemic will provide another leg of growth.”
Here are Desjardins’ top investing ideas for 2022:
Financials
Lifecos: Sun Life Financial Inc.
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(“buy”) with a $76 target. Average: $76.21.
Analyst Doug Young: “There are five themes we like. First, it increased its medium-term underlying ROE target to 16 per cent-plus from 12–14 per cent and was able to generate a 15.4-per-cent underlying ROE in the year to date to 3Q21, despite lower interest rates, a significant amount of excess capital and SLC Management not contributing to its full potential. Second, we see several drivers of earnings growth over the coming year—its US group insurance business (including recent acquisitions), getting to scale in Asia, SLC Management hitting the inflection point and potential capital deployment. Third, by our math, SLF has $2.0-billion or more in excess capital and debt capacity, and generates an attractive amount of excess capital annually, partially from MFS. Fourth, MFS has been performing well, with margins at the top end of management’s guidance. Fifth, in our view, SLF will be the least impacted from adopting IFRS 17 in 2023 vs its Canadian peers.”