CIBC Best Ideas - 2025EQUITY RESEARCH
January 2, 2025 Industry Update
CIBC Top-10 Best Ideas – Jan 2025
Breadth Bending Not Breaking
Happy New Year everyone. As we wrap up 2024, we want to thank you all
for your support, friendship, and business – Thank You.
2024 was another successful year for our trendspotting matrix process
(TSM). We closed the year at 23.82%, reflecting an average monthly return
of 1.83%, and 584 bps of Alpha over the benchmark TSX index. A closer
look at our monthly top-10 best ideas and rotation-quad process in 2024
shows that candidates selected from the Improving and Leading quads with
higher TSM rank and delta produced stronger positive returns in any given
month, at a rate of 64%, and outperformed the benchmark TSX index. We
trailed the benchmark in July and November, the best-performing months for
the TSX index. December did not keep up with its strong historical reputation
and became the worst-performing month of the year for the TSX index, with
all GICS sectors closing in the red. Our matrix selection outperformed in
December (+60 bps), albeit with a negative absolute return (-2.99%).
Process – At the risk of sounding self-serving, we suggest that 2025 may be
more about active management through a selective process. It is reasonable
to suggest that the large-cap S&P 500 and the TSX indices may be bound by
a wider range that should bring about both opportunities (using sector and
stock-picking processes) and challenges (elongated overbought trends with
mean-reversion risk). Our matrix process is a bottom-up model, designed to
apply multiple factors adjusted for different regimes, different timeframes,
and seasonal influences to rank the strength of any emerging or established
trends at any given time for portfolio selection - our process assigns a higher
weighting to alpha-factors, which has regularly helped us to better focus on
areas where relative strength trends are validated for durability.
No Pain No Gain – elongated trends carry natural retracement risk (mean
reversion). Both the TSX and SPX have a running monthly RSI >80, levels
that have historically offered challenges for price discovery continuation. Our
work suggests that the TSX and SPX may be susceptible to 7%-12%
negative mean-reversion risk in 2025 before resetting for uptrend
resumption. This puts TSX downside support levels at 24,000 through to
22,500, and SPX at 5,700 through to 5,400 levels, with the lower ranges
offering the next best risk/reward entry points. Our 2025 measured-move
calculation for the TSX index is pegged at 27,300 (potential extension
27,600) and for the SPX is marked at 6,570 (potential extension 6,650).
The following represent our top-10 best ideas for the month of January: Arc
Resources (ARX), Gibson Energy (GEI), Peyto (PEY – carryover), Bank of
Montreal (BMO), Brookfield Corp (BN), Onex Corp (ONEX - carryover),
Aritzia (ATZ), Empire (EMP.A), CAE Inc. (CAE), and Shopify (SHOP –
carryover)