Canadian stocks had an exceptional 2021, with the S&P/TSX composite index producing a 25.1% total return, but there’s still room for stocks to rise, says National Bank Financial Inc. (NBF).
In a research note, the firm said that, despite the market’s strong performance last year, valuations remain reasonable, as the market gains came on the back of a record rise in corporate earnings.
“Importantly, the earnings forecasts underlying the 2022 forward [price-earnings ratios] are reasonably conservative in our view, calling for [earnings-per-share] growth of 7% in 2022,” it said.
As a result, even in light of last year’s market gains, “we believe there is still gas in the tank” for Canadian stocks in 2022, NBF said.
The firm continues to overweight stocks generally, and the Canadian market in particular, in its asset allocation models.
Within the equities segment, NBF said it favours value over growth stocks, “given our expectation of rising long-term interest rates and yield-curve slope.”