TSX MID-YEAR REVIEW: THE BEST AND THE WORST
It’s been a dull year for Canadian investors but we find some stars among the laggards
The first half of 2018 has been a slog for Canadian investors. With the halfway point of the investing year approaching, the S&P/ TSX composite index was up a stingy 0.8 per cent as of June 21. But that doesn’t mean there haven’t been some powerful outperformers, as well as some major laggards. Here’s a look at five best- and worst-performing stocks so far this year.
CANADA GOOSE HOLDINGS INC. (UP 108.3 PER CENT)
E-commerce is at the heart of Canada Goose’s phenomenal run this year. The iconic parka maker has, for the past couple of years, been moving away from its wholesale model of supplying department stores.
Instead, the company — especially since its IPO last March — has been leveraging its new status as a luxury brand by switching to a direct-to-consumer model that has seen it expand online sales internationally and open branded retail outlets across North America and in tourist hot spots, like Hong Kong, London and Chicago.
For early investors, that has really paid off, with shares having more than tripled since its public debut.
MEG ENERGY CORP. (UP 89.7 PER CENT)
For long-term shareholders, MEG’s recent run-up is nothing to get too excited about. The oilsands producer is still down about 80 per cent from its 2011 highs, due mainly to the 2014 oil crash and a stretched balance sheet.
But MEG seems to have learned from past mistakes.
As of late, the company has insulated itself against low Canadian oil prices through an active hedging program. And, in February, MEG announced a $1.6-billion deal to sell its stake in the Access Pipeline.
Not only does the deal allow for a major debt repayment, but MEG managed — in a move reminiscent of a retail leaseback deal — to secure 30 years worth of capacity on the pipeline.
SHOPIFY INC. (UP 76.8 PER CENT)
While it hasn’t quite kept pace with Canada Goose this year, Shopify has continued to ride a hot streak on the back of the e-commerce boom.
Its 2015 debut on the TSX also, wisely, included a cross-listing on the New York Stock Exchange. As a result, Shopify has been swept up in the tech boom that has this year lifted Netflix (up 116.4 per cent) and Twitter (88.4).
With a market capitalization 10 times greater than annual sales, the stock may be teetering on the edge of exuberance, but so far Shopify has been impervious to short-sellers who have occasionally taken a swing.
BOMBARDIER INC. (UP 72.4 PER CENT)
Contrast the exuberance at Shopify with the enormous sigh of relief being exhaled by shareholders of Bombardier. The plane and train manufacturer avoided catastrophe last fall when it sold its C-Series jetliner program to European giant AirbusSE.
U.S. tariffs had posed an existential threat to the C-Series — and perhaps to Bombardier itself — so the company opted to kill its dream of a purely Canadian jetliner by selling a majority interest to Airbus, which has tariff-free manufacturing facilities in Alabama.
Shareholders are hoping the company hasn’t made the mistake of selling off the crown jewels — as it did in May 2013, when it spun out recreational vehicle manufacturing BRP Inc. (up 154 per cent since then and No. 6 year to date with a 40.4-per-cent return) — but most analysts have endorsed Bombardier’s plan.
With debt falling and orders rising, the company is looking stronger than it has in years.
THE STARS GROUP INC. (UP 71.7 PER CENT)
If the name doesn’t sound familiar, perhaps its old name will ring a bell: Amaya Inc. Yes, that Amaya — owner of PokerStars.com, whose founder, David Baazov, was charged with insider trading (only to be acquitted earlier this month on a bungled prosecution).
Since 2014, shares of Amaya had been depressed by the negative headlines, in addition to weak earnings and an overleveraged balance sheet. But the pendulum started to swing the other way last summer, when the company decided to change its name.
Since then, CEO Rafi Ashkenazi has paid down debt, hired a new team and expanded offerings like sports betting and casino games to diversify away from poker. With their finances in order, Stars Group is now ready to launch an acquisition campaign to roll up the industry.
THE BOTTOM FIVE
On the other side of the equation, most of the worst performances to date this year share the same underlying problem: weak commodity prices.
Natural gas prices fell over 40 per cent in mid-2014, leaving Peyto Exploration & Development Corp. (down 32.7 per cent) in the lurch. Despite slashing its dividend in January, the company has continued to miss analyst estimates.
New Gold Inc. (down 33.1 per cent) has suffered both from the decline in gold prices — down to US$1,270 from 2012 highs around US$1,800 — as well as the poor performance of its Rainy River mine in Ontario.
Copper prices have actually recovered to five-year highs, but that won’t help Ivanhoe Mines Ltd. (down 34.2 per cent), whose Kamoa-Kakula project in the Democratic Republic of Congo has been thrown into limbo after the government there reneged on a royalty agreement.
The last two underperformers have indigestion issues. Element Fleet Management Corp. (down 32.7 per cent) bit off more than it could chew when it acquired GE’s fleet management business in 2015. A botched integration proved disastrous when clients started heading for the doors.
And for Canada’s worst-performing stock, Corus Entertainment Inc. (down 44.9 per cent), the acquisition of Shaw Media has been a disappointment. The company is now the owner of a TV and radio empire that, in the age of Netflix, is in rapid decline.