The equity research team at Desjardins Securities revealed its 2021 outlook and top stock picks in a research note released Friday before the bell.
With an eye toward the lingering effects of the COVID-19 pandemic, the firm selected 25 equities with “the best growth prospects and/or the largest number of expected catalysts” for 2021.
“2020 is a year many of us would like to forget, given the COVID-19 pandemic,” the firm said. “The stock market saw a late-1Q plunge which was followed by an immediate bounce and recovery, aided by quick government intervention and decisive action taken by many companies to shore up balance sheets, cut costs and rein in capital expenditures. While markets have generally trended up following the rally to almost pre-pandemic highs, the upside was capped by a resurgence in COVID-19 cases and a divisive, colourful U.S. presidential campaign. Some sectors, such as IT, fared well during the pandemic as we adapted to work, learn and play at home; others, such as energy, suffered—for obvious reasons—as demand for oil dried up.
“We believe the set-up for 2021 is strong, with a broad recovery expected in the economy and markets. Tailwinds in 2021 include the development of multiple vaccines in record time to address the COVID-19 crisis, a recovery in GDP, greater political certainty and low interest rates. We expect a return to a more traditional sector recovery, with materials, energy, industrials and consumer staples/ discretionary likely to benefit, while IT and communication services could face headwinds. Moreover, we believe the growing focus on ESG/sustainable investing will continue to gather steam and become more of a key focus of investor decisions exiting the pandemic.”
Seeing “winning the battle” against the pandemic as the overarching economic objective heading into the new year, the firm expects “sluggish” growth for the Canadian economy in the first quarter followed by a “strong pickup” through the remainder of 2021.
“We still expect some of the sectoral dislocations caused by COVID-19 to be glaring in 2021,” it said. “Sectors such as aerospace, commodity extraction and commercial real estate will probably not obtain an automatic bailout post-vaccine. Sectors already vulnerable to technological change (ie physical retail) prior to COVID-19 will struggle to find their footing.”
Here are the firm’s equity picks for 2021:
Oil & Gas
Tourmaline Oil Corp. (TOU-T, “buy”) with a $35 target
Mr. Bouchard: “We continue to see a very bullish backdrop for natural gas pricing fundamentals over 2021, and TOU remains our favourite means to play the gas-weighted E&P space. We believe there is a once-in-ageneration opportunity to capture outsized benefits at a comparatively modest risk in the case of TOU owing to its investment-grade balance sheet (estimated 2021 D/CF of 0.7 times at strip), low-cost asset base and very capable management team.”