Market correction forecasts mount, alluring pharma stocks, and the end of safe dividend-paying sectors Add to.
As September begins, there are more predictions of a significant equity market correction now than I think I’ve ever seen. From Art Cashin. who thanks to CNBC is likely the most famous trader in the world, to Canaccord Genuity strategist Martin Roberge. to the UBS quantitative strategy team. industry professionals are watching markets through their fingers like they’re at a viewing of Friday the 13th for the first time.
Market corrections don’t often happen when everyone’s looking for them. As Merrill Lynch Strategist Savita Subramanian notes. when analyst sentiment is this negative, historical patterns suggest the market is about to jump higher. Ms. Subramanian uses a proprietary measure of analyst and strategist sentiment, the sell-side indicator, which is at its lowest point since 2013,
Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 100 per cent of the time, with median 12-month returns of [more than] 27 percent.
The pessimistic views and Merrill Lynch’s optimistic scenario are not necessarily at odds. Predictions for a correction focus on the very near term — September basically — while Ms. Subramanian is looking 12 months ahead. It’s entirely possible that a significant correction can occur, which paves the way for a resumption of the equity market rally. If this is the case, investors who sell during the correction will underperform.
— Scott Barlow
Knight Therapeutics Inc. This pharmaceutical company has a strong balance sheet. which may protect is as we head into September, an often volatile trading month, writes Jennifer Dowty. Of the 10 analysts who follow the stock, nine have buy recommendations and one has a hold. The average one-year target price on the stock is $9.65, about 10 per cent higher than it’s trading now.
Pattern Energy Group Inc. This renewable energy stock offers an attractive yield, even though there are some risks. writes Gordon Pape. This company has a 6.5 per cent dividend yield, and it has also raised its dividend for 10 consecutive quarters. The company recently posted a loss, and that’s a concern, he notes.
Sienna Senior Living Inc. This company is one of Canada’s largest owners and operators of seniors housing with long-term care homes and retirement homes in Ontario and British Columbia, writes Jennifer Dowty, and it has a strong place in the market and stable cash flow from its residences. Its dividend yield is 5.3 per cent, and is quite sustainable. There’s only one analyst with a buy recommendation and nine with a hold recommendation and the average one-year price target is $17.91, suggesting a potential gain of 5 per cent over the next 12 months.
Potash Corp. and the waning role of stock options
David Milstead take a look at Potash Corp.’s stock options. and how the company has used them, to get a perspective on this deal. Specifically: Did the company’s compensation programs incentivize its leaders to push back against a 2010 offer from BHP Billiton Ltd. that now looks like a missed opportunity? And, by contrast, does Potash Corp.’s new pay mix make an Agrium deal look more appealing?
Desperate for higher yields? Consider these options
If you’re looking for some higher yields, don’t dismiss Guaranteed Investment Certificates (GICs), writes Rob Carrick. Some of the highest available rates on GICs are offered by Canadian Direct Financial, Oaken Financial and Peoples Trust with rates as high at 2.5 per cent for a three-year GIC.
Watch out for a September TSX pullback
History has shown that September can be a volatile month for the stock market. writes Jennifer Dowty. Looking back over the past 26 years to 1990, the S P/TSX composite index has delivered negative price returns 50 per cent of the time during the month. Narrowing this down, the TSX has declined in three of the past five. Martin Roberge from Canaccord Genuity gives some advice about how investors can position their portfolios.
Why ‘safe’ dividend-paying sectors may be in danger
UBS’s global quantitative strategy team led by Paul Winter is the first I’ve seen to outright declare the end of the global credit cycle. writes Scott Barlow. It’s an outlier view so far, but because the negative implications for popular dividend-paying equity market sectors is so potentially severe, it’s a thesis we should take seriously. In a report entitled, When is the Stock Market Likely to Correct? Mr. Winter outlines how the investment cycle leads to asset bubbles and severe corrections.
Why REITs are losing momentum
After posting big gains in the first half of the year, real estate investment trusts (REITs) appear to be running out of steam. writes Gordon Pape. As of the close of trading on Aug. 29, the S P/TSX Capped REIT Index was down 3.8 per cent for the month, breaking a winning streak that began at the end of February.
Hungry for dividends? Big blue chips may not be the answer
Some dividend stocks have been running out of juice recently, such as Shaw Communications, writes Rob Carrick. Other dividend growth stocks that show no dividend growth over the past 12 months include Rogers Communications. Suncor Energy and Sun Life Financial. The lack of recent growth is a reminder of the need to stay alert with dividend growth stocks. Buy and hold them, but don’t be complacent.
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What’s up in the days ahead
Tim Shufelt takes a look at the outlook for equity markets this fall, and Rob Carrick answers some of your top investing questions, in a fall investor preview package in the ROB this Saturday. Also on Saturday, Norman Rothery examines the performance of his value portfolio. On Monday, Thane Stenner looks at how high-net-worth investors evaluate risk, and Larry Berman asks: what is the growth catalyst now to keep markets trading at expensive multiples? And he gives some defensive ETF options. On Tuesday, Andy Willis asks how much yield is too much yield?
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Compiled by Gillian Livingston
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