If you're hoping for a Santa Claus rally, Desjardins Securities Inc. analysts have some suggestions on where to place your bets for a happy holiday season.
While this past year's market has been anything but jolly, December historically has been favourable for equities in both good and bad years. The TSX composite index has ended December in the green in 18 out of the last 20 years, with an average return of 2.5 per cent, while the S&P 500 has returned 2.0 per cent, Desjardins analyst Pierre Lacroix points out in a research note.
Materials has been one of the best sectors, outperforming the broader market by almost 50 per cent. Other strong sectors include industrials and energy - although Mr. Lacroix points out energy stocks tend to underperform when the sector has had negative returns in the first 11 months of the year, as it has this past year.
But for the overall market, "we have not found significant evidence that negative returns from January to November impair the December effect.
His favourite stock right now to buy for a year-end rally? SNC-Lavalin Group , which is down about 17 per cent so far in 2011. That's its second worst January-November performance in the last 20 years (2008 was the worst).
"We are very confident in SNC's future because of its strong fundamentals, robust backlog and solid prospects. Furthermore, this may be an opportune moment to invest in SNC, as the company has historically delivered a positive performance during December with an average return of 4.5 per cent over the last 19 years - one of our top performers on a risk-adjusted basis," he wrote.
He rates SNC has a "top pick-average risk" with a $64 price target.
Mr. Lacroix also believes December prospects look good for GLV Inc. (price target $8.24); Genivar Inc. (target $31); Stantec Inc. (target $31.50); and Aecon Group (target $12.50).
He suggests also taking positions in Norbord Inc. (price target $13.50) and Canfor Corp. ($12.50). The wood products sector have historically done well this time of year, but the two companies have not yet rallied.
Bombardier Inc.'s third quarter modestly exceeded expectations, but National Bank Financial analyst Cameron Doerksen is concerned with the sluggish demand for its regional aircraft.
"Backlogs for Q400 turboprops and CRJs remain very low and Bombardier needs to generate new orders for both models to avoid additional rate cuts," Mr. Doerksen said. He added, however, that he expects new orders to be announced in coming months.
Based mainly on slightly reduced margin assumptions in Bombardier's Aerospace division and lower revenue growth in Transportation due to foreign exchange fluctuations, he lowered his calendar 2012 earnings per share forecast to 50 cents from 54 cents.
Upside: Mr. Doerksen cut his price target by 50 cents to $6, but maintained an "outperform" rating. "The sentiment on the company remains very negative, but given that the stock is only trading at 7.6 times our 2012 EPS forecast, we believe that the risks are more than priced in," he commented.
Brigantine Advisors analyst Barbara Coffey is questioning whether Adobe Systems Inc. will be able to secure 800,000 new users by 2015 without impacting margins, goals the company revealed at a recent analyst briefing. She calls some of Adobe's targets "optimistic," and concluded "we are taking a show me attitude at this point, wanting to see how the company wins over the creative community and how it expands into the enterprise. Until we see the results, we see more risks than rewards."
Downside: Ms. Coffey downgraded her rating to "sell," with a price target of $23
Reitmans (Canada) Ltd. reported third-quarter results that were down from last year and were lower than expectations amid weakness in the retail sector. "But Reitmans still remains a very profitable company with an enviable balance sheet and a very attractive and sustainable dividend that we actually expect to increase in the next few quarters," commented Versant Partners analyst Neil Linsdell.
Upside: Mr. Linsdell reiterated a "buy" rating, although he cut his price target by $1.50 to $17.50.
North American Energy Partners has been awarded two contracts totaling $128-million, including pre-construction work for the Joslyn North Mine project in Alberta. CIBC World Markets Inc. analyst Jeff Fetterly called the Joslyn contract "a strategic win" that will position the company for additional work as development of the oil sands project accelerates.
Upside: Mr. Fetterly raised his price target by 50 cents to $8.50 and maintained a "sector performer" rating.