The strong performance of the Canadian equity market continued in February with a gain of 3.8%, bringing the total return so far this year to 4.3%. The mining sector, and especially the shares of the gold mining companies, built on the already substantial increases in January with further exceptional gains in February.
The top performing stock in February included in the Toronto Stock Exchange 300 Composite Index (^GSPTSE), Detour Gold Corp, has now gained 134% this year. A long way down the list, the best non-mining related stocks in February were Linamar Corp and Progressive Waste Solutions, which gained 13% and 9% respectively.
The laggards in February came from diverse industries but all reported poor results, had company-specific problems or clouded business outlooks for 2014. Right at the bottom of the performance table were Air Canada (-23%), Bombardier (-10%), and Rogers Communications (-9%).
The strong stock market performance so far this year was likely at least partly due to the weaker Canadian dollar, which supports business operations and profitability of a range of listed Canadian companies. The 2.9% fourth quarter growth in real GDP and the positive StatsCan revisions to the expected first half 2014 growth would also support the positive market outlook.
Watch the performance of these three companies this week…
On Monday, Magna International (TSX: MG)(NYSE:MGA) is expected to report earnings per share of $1.52 for the quarter versus $1.67 a year ago. This global designer and manufacturer of automotive components counts the top motor car brands, including BMW, Daimler and General Motors among its client base.
Fuelled by the strong U.S. car market in 2013, the previous quarter results were excellent and management also raised profit guidance for the full year and for 2014. The share price increased by more than 600% since the 2009 lows and by 80% in the past year. The market will not want to be disappointed with the fourth-quarter results or the 2014 outlook.
On Tuesday, Bank of Nova Scotia (TSX: BNS)(NYSE:BNS) will report expected earnings per share of $1.33 compared to $1.27 a year ago. Given the generally positive results of the other Canadian banks that reported last week, Bank of Nova Scotia should be able to deliver similar results. However, with operations in 55 countries and more than 20 acquisitions over the past five years, Bank of Nova Scotia has a larger and more diverse non-Canadian component, which may at any time deliver a surprise, either positive or negative.
On Thursday, Canadian National Resources (TSX:CNQ)(NYSE:CNQ) is expected to report earnings per share of $0.56 compared to $0.33 a year ago. The market is primed for good results after strong third-quarter cash flow and production results, a 60% hike in the quarterly dividend and a 14% jump in the share price over the past five weeks. A
part from the fourth quarter production and financial results, the 2014 outlook will also be keenly scrutinised. Previous management guidance was for further solid production growth, higher capital expenditure and $1 billion of free cash flow. This will now change with the recent $3.1 billion acquisition of certain Devon Canada assets.
Another item to watch out for is the potential spin-off and separate listing of a royalty cash flow stream that could generate considerable capital for the company.
On a less positive note are the considerable sales ($38 million) of shares by company insiders (including senior management, directors or strategic shareholders) over the past two months. The company also holds the top slot on the list of short sales on the Toronto Stock Exchange. At least some investors do not hold a positive view on this company.