When you see the list of the most popular stocks on Morningstar Canada this year, you might be a little surprised. Not because there are any unusual names, but rather because of how predictable we Canadians are with our favourite stocks (and funds) to watch, year after year.
Is it bad that we tend to go with what we know? Or are Canadian companies just consistently attractive? I’d like to think the latter. Most of them have carved out Morningstar Economic Moats, and their stocks trade at appealing values based on their Morningstar Star Ratings.
While Morningstar Canada readers may regularly make quality picks, they haven’t been immune to last year’s market volatility, leading to a shuffling of names on the leaderboard – and some popular Canadian stocks on sale:
TD (TD) took the spotlight away from rival RBC (RY) this year, with it’s potentially better positioning for a rocky 2024 as Canadian households finish settling into (hopefully) peak interest rates. The two banks have contrasting exposure to the Canadian housing market, according to equity analyst Michael Miller. “Toronto Dominion has one of the smaller exposures to the domestic real estate market in Canada, and we view this as a manageable risk for the bank,” says Miller, while Royal Bank of Canada has one of the larger exposures, he says, however noting that “we view this as more of a future risk to growth than an existential risk to capital.”
Canadian Investors Expect Enbridge Dividends
Despite having dividends on a determined upward march, Enbridge ENB didn’t do anything too unexpected to drive clicks this year. “The lack of surprises is reflected in the firm’s [2024] guidance toward a midpoint of $16.9 billion in 2024 EBITDA compared with our $17.1 billion forecast,” says strategist Stephen Ellis. He says growth drivers for 2024 are mainly the CAD 3 billion in projects placed in service in 2023, partial contributions from the CAD 4 billion in 2024 projects expected to enter service, and the more than CAD 3 billion in acquisitions already announced in 2023.
The next three most popular Canadian stocks in 2023 have held fourth, fifth and sixth spot for three years now. Last year they were even in the same order. Take from that what you will, but keep in mind that their situations haven’t remained the same. Bank of Nova Scotia BNS and BCE BCE both fell deeper into undervalued territory as investors worried about a rise in bank loan provisions and mandatory network sharing, respectively, while investors may have celebrated Apple APPL’s major moat upgrade a bit too much. “Apple’s valuation has surged more than 40% in 2023 year to date, behind new product launches and improving macroeconomic conditions,” says equity analyst William Kerwin, while adding that the sole American stock in our Canadian investor top 10 has outpaced its fundamentals. “We recommend investors wait for a pullback before investing,” he says.
Return of a Popular Canadian Telecom Stock
In 7th, we see Canadian investors seem to have an on-again, off-again relationship with Telus T. This year, competition in the communications sector and headlines around headcount reductions at the company got some attention but took a toll on Telus stock, making it the cheapest among Canadian telecoms, while the business continues to perform. “Telus added 160,000 net mobile phone customers, the best result of any quarter since 2008,” says equity analyst Matthew Dolgin.
The last three spots in our top ten most popular stocks in Canada are all in the financial sector but have significant strategic differences. When it comes to Canadian housing exposure, “Bank of Montreal BMO has the lowest relative exposure to residential mortgage loans among its peers,” says Miller, adding that it helps to mitigate some of the risks in its loan book, although a true housing crisis could cause a recession and hurt its commercial loans business indirectly. Meanwhile CIBC CM now has the highest overall exposure to uninsured mortgages among its peers, says Miller. “Given the bank’s history of poor risk-taking, we think the ability to navigate a mortgage downturn given its existing mortgage portfolio, without severe hits to profitability, will be a key test of the new, ‘lower-risk’ CIBC, he says, “If the bank can successfully do this, we think it will be evident that stewardship at CIBC has hit new highs.”
Manulife’s International Bets Get Domestic Attention
Lastly, Canadian investors in the insurance space were tuned into Manulife MFC this year at Morningstar Canada, but they may be getting less exposure to certain insurance products and more into asset management. “We appreciate management’s efforts in reducing its exposure to riskier products like long-term care insurance and variable annuities and increasing exposure to high potential businesses like Asia and investment management,” says equity analyst Suryansh Sharma, noting that the company expects strong growth in the Asia segment on the back of secular economic trends such as the emergence of the middle class and relatively unsaturated insurance markets.
