(September 5 – 11:40 ET) – Canada is the focus of the influential Wall Street Journal “Heard on the Street” column today, with market watchers wondering why Canada’s resource stocks are still languishing.
The WSJ says Canadian resource stocks are cheap, but investors aren’t buying them for a number of reasons. It points to the expectation of an economic slowdown, weaker commodity prices, and investor preferences for technology and financial services stocks.
Resources are a withering component of Canadian market growth. The sector now accounts for just 15% of TSE 300 market cap, about half of what it did 10 years ago. Much of this is due to the great growth of tech stocks, but resources are definitely struggling.
The WSJ notes that the stock price of Noranda Inc. has slipped to around $15 from $21 at the start of the year, while the rest of the TSE is up 35%. The drop happened despite the fact that the company’s earnings are expected to more than double this year, and the stock carries a dividend yield of more than 5%.
Stocks such as Noranda, Talisman Energy Inc., Crestar Energy Inc., Canfor Corp., Slocan Forest Products Ltd., Tembec Inc., and Abitibi-Consolidated Inc. are tipped as bargains.
M&A activity in the mining sector may bolster base-metals producers, the story suggests, pointing to the recent takeover battle between Noranda and Billiton plc over Rio Algom Ltd. Inco Ltd. is also tipped as undervalued.
Len Racioppo, president of Jarislowsky Fraser Ltd. in Toronto suggests that investors “expect commodity prices to come off, and the resource sector to not fare well.” Paul Wong, portfolio manager with Talfund Management in Toronto, is quoted saying Canada’s resource sector is “cheap, but the problem is it keeps getting cheaper.”