The Toronto Stock Exchange is on track to match or beat its 21.7% overall gain in 2021. Canada’s main stock index is up 21.2% year-to-date as of this writing. Bay Street is optimistic heading into the new year, although there are mixed expectations. Some market analysts see a higher but subdued return (4.5% increase) following this year’s record run.
Brian Belski, chief investment strategist at BMO, sees a 15% gain to 28,500 by year-end 2025. He bets that small-cap Canadian stocks will do very well in the next decade. Belski is bullish on the energy and basic materials sectors. He also expects smaller tech names to deliver strong earnings growth.
However, despite these market predictions, people should watch out for emerging investment trends and be discerning to ensure financial success.
Headwinds and tailwinds
Conflict and geopolitics are headwinds, while increasing demand for diverse energy sources are tailwinds. The artificial intelligence (AI) era is upon us, and AI fueled-businesses will prosper. Rate cuts and lower borrowing costs could stabilize and boost Canada’s housing market.
Core position
Technology (+39.75% year-to-date) is the top performer thus far among the TSX’s 11 primary sectors. Celestica (TSX:CLS) is the logical choice if you want an AI play. The $10.5 billion American-Canadian company provides high-reliability design, manufacturing, and supply chain solutions. Its domain is the AI hardware space.
At $91.01 per share, this TSX tech stock enjoys a +210.8% year-to-date gain compared to AI king NVIDIA’s +177.4%. Market analysts see connectivity and cloud, and advanced technology solutions as growth drivers. The revenue growth guide is 8.3% in 2025 and 10% annually in succeeding years.
In the first three quarters of 2024, revenue and net earnings increased 18% and 45.3% year-over-year to $7.1 billion and $293 million, respectively. Notably, adjusted free cash flow (FCF) jumped 54.2% to $74.5 million from a year ago. Rob Mionis, President and CEO of Celestica, said, “We expect a strong close to another successful year in 2024.”
“Looking to next year, we continue to see solid demand signals from many of our large customers, which are providing us with visibility for continued growth. Our 2025 outlook calls for higher year-over-year revenues,” Mionis added. Industry experts say next year is a key year for AI as more enterprises reach the maturity stage.
Anchor stock
An investment portfolio needs an anchor, and the Royal Bank of Canada (TSX:RY), Canada’s largest bank is a no-brainer choice. The Big Bank stock trades at $177.42 (+37.6% year-to-date) and pays a 3.2% dividend. Its quarterly payouts should be safe, given the less than 50% payout ratio.
In fiscal 2024 (12 months ending October 31, 2024), net income increased 10% to $16.2 billion compared to fiscal 2023. RBC President and CEO Dave McKay said the $252.6 billion bank’s premium franchises delivered diversified revenue growth, underpinned by a strong balance sheet and prudent risk management.
The Board approved a 4% dividend hike and the track record is now 154 years. McKay added RBC is a competitive global financial institution and will enter 2025 from a position of strength.
Solid options
RBC and Celestica are solid investment options in 2025. With the TSX’s positive market momentum, the pair offers stability and growth.
