Eight TSX stocks among RBC's top global picks for 2017

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Canadian stocks are "well-positioned" to adapt to shifting global themes in 2017, including a rebound in commodity prices and the impact of a Donald Trump presidency south of the board, according to RBC Dominion Securities analysts.

In fact, eight TSX-listed stocks were named in its Top 30 Global Ideas for 2017, released Wednesday.

In the annual report, RBC's team of equity research analysts seeks to identify "the most attractive" investment ideas for the coming year.

Included in the list were: Air Canada (AC-T), Alimentation Couche-Tard Inc. (ATD.B-T), Brookfield Asset Management Inc. (BAM.A-T, BAM-N), Magna International Inc. (MG-T, MGA-N), National Bank of Canada (NA-T), Suncor Energy Inc. (SU-T, SU-N), TransCanada Corp. (TRP-T, TRP-N) and Waste Connections Inc. (WCN-T, WCN-N).

"Over the past several months, the investment landscape has dramatically changed," said the firm in the report. "Following the Brexit lows, inflation expectations and interest rates started to move higher on the back of a tighter U.S. labour market and the promise of greater global fiscal measures and pro-growth policies. Our strategists and economists predict this shift in backdrop to be more favorable to equity investors. RBC's Chief Equity Strategist Jonathan Golub 'believes that rising earnings and multiples will push [global] equity returns into the double digits from our previous single-digit baseline.'

"Consistent with this view, he forecasts the S&P 500 to trade at 2,500 by year-end 2017, driven by an acceleration in earnings growth and upside to forward multiples."

Other North American-listed stocks were: Air Lease Corp. (AL-N); Aramark Corp. (ARMK-N); Broadcom Ltd. (AVGO-Q); ENI SpA (E-N, MILAN: ENI); MasterCard Inc. (MA-N); Netflix Inc. (NFLX-Q); Newell Brands Inc. (NWL-N); Noble Energy Inc. (NBL-N); Ropet Technologies Inc. (ROP-N); ServiceNow Inc. (NOW-N); The Dow Chemical Co. (DOW-N); The Interpublic Group of Companies (IPG-N); The PNC Financial Services Group (PNC-N) and Whirlpool Corp. (WHR-N).

European stocks included in the list were: Allianz SE (XETRA: ALV); Associated British Foods (LSE: ABF); Lloyds Banking Group PLC (LSE: LLOY); Nestle S.A. (VX: NESN); Oil Search Ltd. (ASX OSH); RWE AG (FSE: RWEG, XETRA: RWEG); Ryanair Holdings PLC (ISE: RYA, LSE: RYA) and Telecom Italia SPA (MILAN: TIT).

Canadian equity strategist Matt Barasch said Canadian stocks "reasserted themselves" in 2016, outperforming most global indexes.

"The primary drivers of this resurgence in our view were: 1) relative valuation on the S&P/TSX had reached historic extremes; and 2) cyclical factors such as significant Chinese stimulus (begun in 2015) and a more dovish Federal Reserve than was discounted as 2016 began," he said.

"While valuation is still below historic relative norms and earnings are set to recover smartly on the back of recovering oil prices, our argument has been that the inevitable throttling back of Chinese stimulus and/or a shift in tone from the U.S. Fed may be enough to 'close the window' so to speak on TSX outperformance. However, in our view, the election of Donald Trump has potentially extended this 'window' [in 2017] ... President-elect Donald Trump has put forward an ambitious economic plan that combines across the board tax cuts (personal, corporate and repatriation) with infrastructure spending, a more liberal energy policy and a reduction in regulations. On the surface, these policies should be supportive to Canadian stock performance, as the S&P/TSX is heavy in those stocks that benefit from steeper yield curves (banks and lifecos), not to mention the potential for increased resource demand on the back of a stronger U.S. economy."

Mr. Barasch said 2017 "sets up well" for Canadian stocks, maintaining his "overweight " recommendation. He also reiterated his 18-month price objective on the S&P/TSX, which was recently raised to 16,300 from 15,800. That represents an approximately 12-per-cent upside from current levels."

"Our view is that the shift from a narrative primarily driven by monetary policy to one driven by a combination of monetary and fiscal policy present a compelling potential set-up for Canadian stocks. However, at the same time, in our view, the range of outcomes has become much wider than it was previously. For the better part of 7 years, we were on a low growth path that offered very little variability, but was at the very least fairly reliable. U.S. recession risks remained low for the most part, while at the same time, big upside economic surprises were essentially non-existent. With the election of Donald Trump, not to mention Brexit and other upcoming votes in Europe and around the world, the potential for an up-shift in U.S. and global growth has increased in the view of RBC economists. However, so have the downside risks, as policy missteps become a greater risk. Put another way, the amplitude of the U.S. and global economy has been fairly narrow for more than half a decade; we would not be surprised to see this amplitude widen considerably."

On Air Canada ("top pick" rating, $18 target), analyst Walter Spacklin said: "Having achieved a groundbreaking labour deal in 2013 that gave management the tools and flexibility to completely restructure operations, Air Canada remains in the early stages of executing on a major structural transformation of the company. The result is an opportunity to reduce per-unit costs by as much as 21 per cent or more by 2018 (from 2012 levels), with additional cost savings identified into 2021. This cost transformation has already brought about improved financial results and significant operational flexibility. And while we believe the capacity and fleet transformation have opened the door to significant growth, we believe we have likely reached the apex on these measures, which should allay fears that AC is growing too fast. What this means is that as we crest this capacity and capex apex, we expect a meaningful improvement in free cash flow and significant balance sheet deleveraging as we approach 2021. Our view is if management is successful in achieving this, the share price upside potential is considerable."

On Alimentation Couche-Tard ("outperform" rating, $83 target), analyst Irene Nattel said: "Through a combination of tailwind of prior period acquisitions and solid organic performance and potential acquisitions, we expect ATD to deliver sector-leading financial results. ATD continues to deliver solid results from underlying operations and is actively participating in the c-store industry consolidation globally, with a demonstrated ability to significantly enhance the profitability of acquisitions post-transaction. Looking ahead, earning growth in F17-19 should continue to benefit from prior period/recent acquisitions, and the pipeline remains robust with potential transactions of varying size in both existing and new geographies."

On Brookfield Asset Management ("top pick" rating, $40 U.S. target), analyst Neil Downey said: "Real asset themes have staying power, in our view – We expect global allocations to real assets will continue to grow due to: 1) global savings trends; 2) the growing size of institutions and the compounding of their returns; and, 3) the need for returns that are in excess of fixed income yields, which, even under a moderately higher rate scenario we believe will be unsatisfactory to many (particularly on an after tax basis)."

On Magna International ("outperform" rating, $55 U.S. target), analyst Steve Arthur said: "North American auto sales are generally considered to be at or near peak levels (a situation reflected in our base case forecast), though we continue to see multiple drivers of earnings and share price growth."

On National Bank of Canada ("outperform" rating, $57 target), analyst Darko Mihelic said: "We believe NA's stock is attractive given a favourable risk-reward trade-off. NA currently trades at a 12-per-cent discount to peers on our 2017 core EPS, which remains below its historical average discount to peers of -10 per cent. We expect NA's relative valuation to improve to historical levels as concerns over credit and capital continue to subside."

On Suncor Energy ("outperform" rating, $50 target), analyst Greg Pardy said: "Suncor Energy has re-engineered itself into a best-in-breed, global integrated oil company adhering to capital discipline, cost improvement, and superior execution. We believe that Suncor has emerged as the Canadian integrated name of choice, with well-defined production growth, a strong balance sheet, and the removal of an M&A overhang (allowing investors to capitalize the significant free cash flow set to materialize in 2017 and 2018) serving as distinguishing features."

On TransCanada ("outperform" rating, $72 target), analyst Robert Kwan said: "We believe TransCanada is well-positioned relative to our pipeline/midstream coverage with the stock trading at a similar valuation multiple to the midstream peers, but with a superior growth rate (magnitude and duration of visibility), minimal commodity price or volume exposure (more than 90 per cent of EBITDA derived from regulated assets or long-term contracts) and a more conservative payout ratio."

On Waste Connections Inc. ("outperform" rating, $90 U.S. target), analyst Derek Spronck said: "Waste Connections acquired Toronto-based Progressive Waste Solutions (BIN) in June of 2016. From a strategic perspective, we see no better buyers of BIN's assets. The combined entity creates the third-largest solid waste company, with a broad breadth of regional waste assets. While consolidation at the SG&A level provide for the initial synergies, it is Waste Connections' strong management team and proven track record of execution that are poised to deliver more material operating synergies, resulting in an inflection in EBITDA and FCF [free cash flow] well into 2018."