10 Top Performing Canadian Stocks in 2021

If the stock market’s recovery from COVID wasn’t swift enough, 2021 surely more than made up for lost ground. But bullishness aside, it’s felt like a market in transition, with opportunities and threats, from great economic growth potential to debt levels and inflation – which makes for a stock picker's market.

Some investors see a rotation to value stocks, some see deflationary periods ahead benefitting select growth stocks, and others have an eye on the general health of broad markets for the buy signal. With all these signals (or noise, whichever way you want to look at it) can you imagine what the top 10 stocks in Canada, in terms of performance, look like for this year? If you’d guessed defensives and value, led by a trendy growth stock and paired with some classic core yielders, you’d be right on the money.

Here’s the list:

Morningstar Direct Data as of Dec 6, 2021

Lithium Americas Corp
The top performing stock is a play on lithium. As the batteries in electric vehicles rely on lithium as a core component, Lithium Americas Corp (LAC) is looking to become a leading low-cost supplier. With three production sites planned, senior equity analyst Seth Goldstein says the company could become a top-five producer.

Goldstein reminds investors of the very high uncertainty rating for the company. They should have a strong stomach – at least until production comes online. “The stock has recently been very volatile, often moving at least 5% versus the prior day's close on little company-specific news. For investors who can tolerate the volatility, we view the company as a good opportunity to invest in growing lithium demand from increased electric vehicle adoption.

CI Financial Corp
The top-performer in our universe of financial stocks this year was a non-bank affiliated asset manager. Blazing its own independent path in Canada, CI Financial (CIX) has been busy this year acquiring wealth management firms both in the U.S. and Canada. “Given the timing and contribution of its wealth management deals, which are proving to be more fruitful than expected,” says sector strategist Greggory Warren, “we have increased our five-year CAGR for revenue growth to 10.4% (from 9.7% previously).”

Investors should keep in mind the growth for Canada’s second-largest independent asset manager will come up against fee pressures, particularly around higher-fee actively managed funds. “While many of the independent asset managers have already cut fees during the past five years, primarily in response to the banks using price as a tool for taking share from the independents (which is something that we expect to continue),” says Warren.

Shaw Communications
Shaw, (perhaps soon-to-be Rogers Communications?) saw its stock price launch on the news of the planned merger with Rogers around mid-March. And then it sort of sat there all year. Shaw Communications (SJR.B) hovered around our fair value estimate and delivered wireline and wireless subscriber results that were in line with our expectations.

But the results of the Shaw business take a backseat to the pending acquisition by Rogers, says equity analyst Matthew Dolgin. And the turmoil at the board of directors at Rogers hasn’t helped.  “Shaw did not comment on the Rogers drama,” Dolgin says, maintaining his optimism on the deal, “the merger is more likely than not to close in the first half of 2022.”

Loblaw Companies
Like Shaw, Loblaw (L) may be benefitting from a shift to defensive equity positioning in Canadian portfolios. “Loblaw is successfully handling emerging inflation pressures (labor, food, transportation),” says senior equity analyst Dan Wasiolek, “We expect Loblaw to be able to pass inflationary costs to consumers over time, and it noted a strong pricing position. This comes despite our long-held view that the competitive environment will remain aggressive.”

One way Loblaw is addressing competitive pressures is through e-commerce adoption. “Loblaw is leaning heavily into the click-and-collect fulfillment method, building several stand-alone online grocery pickup outlets in Ontario in 2020,” adds Wasiolek.

Spin Master
Our fifth-strongest performer this year perhaps became popular among investors/parents of children with Hatchimals or Paw Patrol toys. Spin Master (TOY) had a strong year with some highly visible licensing contracts and content on Nickelodeon., but “despite this rapid growth (with sales more than doubling between 2014-20), we believe the firm has failed to amass an edge, warranting our no-moat rating,” says senior equity analyst Jaime Katz.

Katz sees the stock in two-star territory but believes Spin Master can grow into underpenetrated product and geographic areas.

Thomson Reuters
Also potentially trading at a significant premium but with a moat, Thomson Reuters seems to have found a sweet spot this year. By spinning off its Refinitiv financial and risk operations to London-based LSE Group, the firm has gained more focus, says equity analyst Rajiv Bhatia. “Some of its past offerings have been clunky, and we believe efforts to streamline its business should lead to meaningful margin expansion and higher retention in the years ahead,” says Bhatia.

He views Thomson Reuters' legal offerings as the crown jewel, while the other two main businesses are its corporate and tax and accounting segments.

Power Corporation of Canada
The owner of the largest independent asset manager, Power Corp. (POW), came in close to CI Financial in performance this year and looks priced near our fair value as well – but it’s not due to success in its asset management business.  “While IGM Financial (IGM) has historically generated solid returns, we've been less than impressed by its ability to generate growth in assets under management since the financial crisis,” says Bhatia.

“The majority of Power Corp.’s value is derived from life insurer Great-West Life (GWO),” says Bhatia. Of the big three insurers in Canada, “we believe Great-West is the best run as it has posted the highest returns on equity, averaging 13% over the last five years.”

Bank of Montreal
Both a generous yielder (25%!) and the top gainer among the Canadian banks, Bank of Montreal (BMO) most recently delivered a solid fourth quarter. “Momentum remained strong for wealth- and card-related fees, and we anticipate both of these items will be driving forces of revenue growth in 2022,” says senior equity analyst Eric Compton.

Compton concedes that BMO is not one of the largest or most dominant retail banks in Canada, ranking it in the lower half of the Big Six. “BMO has the lowest relative exposure to residential mortgage loans among its peers, helping to mitigate some of the risks in its loan book, although a true housing crisis could cause a recession and hurt commercial loans indirectly,” he adds.

George Weston
Canada’s most famous bread business is scheduled to sell its Foods business in early 2022. George Weston (WN) has struggled to adapt the segment to secular and demographic shifts, says senior equity analyst Dan Wasiolek. “Despite attempts at a turnaround, we believe this inexorable reality drove management’s recent decision to divest,” he says, “Even after culling the bakery operations from its portfolio, challenges remain for Loblaw and Choice, including ferocious competition, potential adverse drug regulation, and evolving consumer expectations. Nevertheless, we think the management teams have the tools to execute against their strategic priorities.”

Gildan Activewear
Not to be confused with Gilead, printed t-shirt king Gildan (GIL)’s stock price is back to around all-time highs but product demand is still recovering from pandemic lows when with lockdowns, unsurprisingly, activewear sales for the company plummeted 34% in 2020.

The stock which rounds off our top-ten Canadian performers may have had a strong year on the assumption that we’ll be quick to pick up activewear again – but fashions change. “Activewear was weak even before the virus, having suffered a 3% sales decline in 2019 on poor consumer demand and distributor de-stocking in imprintables,” says equity analyst David Swartz.