Inflation pressure remains high despite the report by Statistics Canada that it slowed to 5.9% last month. The TSX suffered a broad-based sell-off on February 21, 2023, lost 262.60 points, and posted its most significant decline this year. Nonetheless, nine of 11 primary sectors are in positive territory year to date.
Energy, the top performer in 2022, is the worst-performing sector (-2.43%), followed by basic materials (-1.39%). Meanwhile, healthcare, technology, and real estate – the battered sectors last year – are the best performers thus far.
If you’re investing, looking into sector-wide trends first is a good approach to stock analysis. Sectors such as financial, mining, and energy could make a 180-degree turn. Also, one stock from these sectors could stand out and reverse course.
Financial
Big Bank stocks underperformed last year, although the National Bank of Canada (TSX:NA) had the least negative return (-1.4%). Today, at $98.77 per share, NA is up 8.26% year to date. Moreover, the 3.92% dividend is super-safe, given the low 37.3% payout ratio.
The headwinds in 2022 were strong. Yet, the $33.4 billion bank reported an 8% year-over-year increase in net income to $3.4 billion. Laurent Ferreira, NA’s President and CEO, said, “We generated superior organic growth across all our business segments, and the operating leverage was positive for the year.”
Ferreira adds that management will prioritize deploying capital to support organic growth. Market analysts recommend a hold rating and forecast the stock price to top $112 soon.
Mining
Orla Mining Ltd (TSX:OLA) is up by only 1.8% year to date but is worth including in your watchlist. Based on market analysts’ price targets, the return potential is between 20.8% (average) and 35.8% (high). OLA trades at $5.58 per share. In 3 years, OLA’s total return is 118.8% or a compound annual growth rate (CAGR) of 29.7%.
The $1.7 billion Canadian mineral exploration company operates the Camino Rojo Oxide Gold Mine in Zacatecas State, Mexico. Besides the 100% owned advanced gold and silver open-pit and heap leach project, Orla has two pre-feasibility stage projects in Panama and Nevada, USA.
Its President and CEO, Jason Simpson, said, “2022 was a defining year for Orla as we made the successful transition from developer to producer. In 2023, cash generation from the high-margin Camino Rojo Mine will be invested into our prospective growth pipeline.” It should also strengthen the balance sheet.
Energy
MEG Energy (TSX:MEG), a TSX30 winner in 2022 (ranked no. 15), deserves to be on investors’ buy lists for its strong fundamentals. The growth stock flew high in the last three years (+199.03%) and could soar even higher in 2023. This $6.4 billion energy company produces in situ thermal oil in southern Athabasca, Alberta.
The Pathways Alliance member benefits from the favourable oil price environment and generates substantial free cash flow (FCF). MEG will allocate its FCF equally to debt reduction and share buybacks. Management said the improved balance sheet and strong operating performance provide a solid foundation to fund the $450 million capital program for 2023.
Based on market analysts’ forecasts, the price could climb to $34 (+58%) from $21.53 in one year.
Superior returns
National Bank of Canada, Orla Mining, and MEG Energy have visible growth potential. All three could deliver superior returns in 2023 and beyond.
