Statistics Canada released GDP numbers for January on March 29. GDP decreased 0.1% in January, as Canada reported decreased activity in oil extraction and the real estate sector. The decision from OPEC to continue its production cut to the end of 2018 managed to sustain a rally for oil into 2018, but prices have only increased marginally so far this year. Home sales have fallen steeply year over year in major metropolitan areas in Canada, exacerbated by new OSFI mortgage rules and an early rate hike in January.
The S&P/TSX Index took another beating on April 3 and was down triple digits at one point before settling down 32 points to close the trading day. Top energy and real estate stocks have suffered with the broader market. Is it time for investors to head for the exits?
Enbridge Inc. (TSX: ENB)(NYSE: ENB)
Enbridge is a Calgary-based company that serves the oil and gas industry. It is the largest energy transportation company in North America. Shares of Enbridge closed down 1.72% on April 3, and the stock has plunged 21% in 2018 thus far. Early rumours in 2018 suggested that Enbridge would accelerate the sale of its assets this year, but this has failed to generate enthusiasm. The stock is still a dividend beast, but its value has plummeted 30% year over year.
Should you steer clear?
In its 2017 fourth-quarter and full-year results, Enbridge posted net earnings of $2.52 billion in 2017 compared to $1.77 billion in 2016. Enbridge is currently burdened by over $61 billion in debt and uncertainty surrounding its Line 3 pipeline project. Even with its highly attractive dividend, Enbridge is simply too volatile to buy right now.
Home Capital Group Inc. (TSX: HCG)
Home Capital Group is a Toronto-based specialty finance company that offers residential and commercial mortgage lending. Home Capital stock rose 0.93% on April 3. Shares have plunged 24.3% in 2018. The company projected that new OSFI mortgage rules would present challenges for loan growth this year, but it also said that retention could improve as a result.
Real estate industry experts are now expecting the housing swoon to extend into the spring. The Bank of Canada will also hold a rate decision in mid-April, and a second hike could apply further pressure on the market. Home Capital saw loans under administration fall 14.8% from 2016 to 2017 largely due to a massive internal restructuring, as the company nearly collapsed. There are too many headwinds in the broader housing industry to take a risk on Home Capital at its current value right now.
Suncor Energy Inc. (TSX: SU)(NYSE: SU)
Suncor is a Calgary-based integrated energy company. Its stock rose 1.05% on April 3. Shares are down 4.5% in 2018 thus far. Suncor is well diversified with a number of major refinery operations as well as over 1,500 Petro service stations. The company posted record quarterly funds from operations in Q4 2017 of $3.01 billion. It also boasts a quarterly dividend of $0.36 per share, representing a 3% dividend yield. Even with broader challenges facing the oil and gas industry in Canada, Suncor remains a strong long-term hold.
