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RBC's top stock picks, advice for gold investors, and why TSX outperformance may be ending

Crude’s remarkable rebound this year has put the Toronto Stock Exchange on the cusp of hitting 14,000. The composite index closed yesterday at its highest level in six months. It’s a rally that’s been fuelled in no small part by oil’s 70 percent surge since its February low. And now Canada’s benchmark stock exchange is sitting on the brink of a threshold it hasn’t seen since last August.

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Emerging markets have had a rough couple of years as they adjust to shifting U.S. monetary policy, volatile currencies and depressed commodity prices – and now weak exports appear to be weighing on their economic prospects.

While major U.S. stock market indexes cruised into Black Friday at record highs, and Canada's benchmark index is leading the developed world with double-digit gains in 2016, popular exchange-traded funds that track emerging markets continue to struggle well off their historical highs.

National Bank Financial senior economist Krishen Rangasamy offered an explanation: While developed economies are growing, spurring the factories and manufacturing plants within developing economies, exports from these developing economies are weak.

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"Unless all of that extra output was absorbed by domestic demand (which is unlikely), the stagnation of exports means already bloated inventories grew further," he said.

Indeed, the ratio that sizes up emerging market industrial production to exports has surged to its highest level – where high is bad – since the Great Recession.

"This does not bode well for future production and hence economic growth in emerging economies," Mr. Rangasamy said in his note.

While that's no reason to run from investments that track emerging markets, it provides a good reason why these investments are lagging the rally that has sent North American stocks on a tear in recent weeks.

-- David Berman

Three big numbers to note

$1,171.21. The closing price of an ounce of gold on Friday, at a 9-1/2 month low, partly on expectations of a U.S. interest rate increase by the Federal Reserve next month.

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$1.13 billion (U.S.) The amount of online spending by U.S. shoppers by Thanksgiving evening, according to Adobe Digital Index, surging almost 14 per cent from a year ago. Online sales for Friday were at $1.65-billion as of 1 p.m. EDT, the data showed.

137.4-million. The number of American consumers who will make purchases in stores or online over the four-day weekend that started on U.S. Thanksgiving, according to the National Retail Federation. But the amount that Americans have spent has declined in the past three years, slipping 26 per cent from 2013 to an average of $299.60 per person in 2015.

Stocks to ponder

North American Energy Partners Inc. This energy stock features unanimous 'buy' calls and 22-per-cent upside forecast, writes Jennifer Dowty. It most recent results came in ahead of forecasts and management gave an optimistic outlook. The company pays shareholders a quarterly dividend of 2 cents per share or 8 cents on a yearly basis. This equates to an annualized yield of 1.6 per cent. All four analysts covering the company have 'buy' recommendations. Last week, the analyst at BMO Capital Markets, Bert Powell, upgraded the stock to an "outperform" from "market perform" and raised this target price to $6 from $3.60. The average one-year target price is $6, implying the share price may rise 22 per cent over the next 12 months.

Alimentation Couche-Tard Inc. It's time to turn cautious on one of the hottest TSX stocks, writes David Berman. Alimentation Couche-Tard has impressed investors with a long track record of big profits, big deals and a big share price – until now. The convenience-store chain reported a dip in its quarterly profit on Tuesday and its revenue crept ahead by a mere 0.1 per cent, missing expectations and offering a rare challenge to a stock that has enjoyed a darling status among investors and analysts. Over the past five years, the share price has surged 590 per cent, after factoring in dividends. That's nearly 15-times the return of the S&P/TSX composite index over the same period, making Couche-Tard the index's third-best performer. But this year, it has moved up just 4.3 per cent, lagging the S&P/TSX composite index by 15 percentage points.

Fiera Capital Corp.  This stock has a 5 per cent yield and two dividend hikes annually since 2013, writes Jennifer Dowty. Montreal-based Fiera is an asset manager with operations across North America serving institutional, high net worth clients, and retail investors. Growth by acquisition remains a strategic plan for the company. This small cap stock is covered by six analysts, one of whom is currently restricted on the stock. The remaining five analysts all have 'buy' recommendations. The average one-year target price is $15.20, implying the share price may rise over 22 per cent over the next 12 months.

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Solium Capital Inc. This TSX stock has surged to near record highs. It's time for investors to turn cautious. Solium Capital Inc. shares have been trading near all-time highs after the financial technology company signed a "game changer" deal with brokerage giant Morgan Stanley, writes Brenda Bouw. The Calgary-based company's stock has since pulled back, however, amid concerns of volatility in the next few quarters as it invests millions to execute the agreement.

Stornoway Diamond Corp. This stock features strong growth, six 'buy' calls and a 36-per-cent upside forecast, writes Jennifer Dowty. This stock appears on the negative breakouts list but as its production ramps up, the share price may recover. Analysts are forecasting the stock price to rise between 24 per cent and 49 per cent over the next year.

HudBay Minerals Inc. This week Scott Barlow picked an overbought, not oversold stock as the focus chart. HudBay Minerals is the most technically extended stock on the overbought list – its Relative Strength Index (RSI) is sky high at 84.6 - as copper prices continue to surge higher. The miner jumped 23.4 per cent in the past week (that's not a typo), so he looks at the stock's two-year performance history in attempt to estimate how much of a warning sign this is.

The Rundown

RBC says these U.S. stocks are poised to benefit from Trump

The Republican sweep of U.S. Congress and the White House has been especially well-received by the small-cap space. While the S&P 500 index of the largest U.S. stocks has increased by a respectable 2.8 per cent since election day, the Russell 2000 small-cap index has shot up by 11.1 per cent over that same time, writes Tim Shufelt. Smaller companies typically have a more domestic focus, so their shares tend to be bigger winners when the U.S. economy's prospects improve. President-elect Donald Trump's pro-business tilt, combined with his isolationist attitude toward trade, have investors increasingly hopeful for domestic growth. Jonathan Golub, chief U.S. market strategist at RBC Dominion Securities has chosen a list of 40 small-cap U.S. stocks poised to benefit from the next U.S. administration.

Gordon Pape: Don't be fooled by the Trump-led market rally

No one is quite certain what will happen when Donald Trump takes over as U.S. President on Jan. 20. So far, stock market investors have convinced themselves that the overall thrust of his administration will be positive for business, writes Gordon Pape. This initial response is premature and may be dead wrong. Investors appear to have assumed that the President-elect will implement all the business-friendly policies he favours (e.g. lower taxes, less regulation, more infrastructure spending) and none of the negative positions he outlined (e.g. trade wars).

Why TSX outperformance will likely fade in 2017

Canadian stocks are hitting the year's home stretch with their biggest lead over the rest of the world in decades, writes Tim Shufelt. On track for a near 20-per-cent rise this calendar year, it would take a substantial change of course over the next month for any other major market to unseat Canada's position atop the markets of the developed world. No other major benchmark has even risen by double digits so far this year. Plus, the S&P/TSX composite index is well on its way to besting the S&P 500 index for the first time in six years. But it's likely to be a short reign. Here's why.

The most contrarian trade ideas for 2017

In his Top Links column, Scott Barlow looks at what are the most contrarian trade ideas for 2017. The list includes falling bond yields, a rising euro relative to the U.S. dollar and a $1-trillion increase in S&P 500 earnings.

Don Coxe: Why I'm not enthusiastic about equities right now

Equity markets have decided that what president-elect Donald Trump wants, he gets, writes Don Coxe. He is good for the American economy and capital markets, but it could take more time than today's excited investors believe. And there are other global factors to keep watch of too, he writes.

Is the recent gold sell-off a buying opportunity for investors?

Gold investors are feeling hard done by and for good reason, writes Ian McGugan. In the run-up to the U.S. election, many forecasters, from Société Générale to ABN Amro to Bespoke Investments, assured their followers that precious metals would soar in value in the unlikely event that Donald Trump were to win. The prognosticators reasoned that people spooked by Trumponomics would dump stocks and take refuge in gold. So much for forecasters. Only hours after the election, major investors performed an about-face on the merits of Mr. Trump's economic policies and decided to embrace stocks while dumping gold – just the opposite of what had been predicted. The precious metal's price has plunged since election day, falling from $1,275 (U.S.) an ounce to $1,181. But does that mean a buying opportunity is opening up?

Three rock-solid REITs with rising payouts

Like the idea of being a landlord, but don't want the hassle of dealing with problem tenants, property damage or maintenance? Real estate investment trusts could be for you, writes John Heinzl. REITs can be a great addition to a diversified portfolio. They generate steady rental income and – if you choose your REITs carefully – that income will grow over time. Predicting short-term price movements of any stock is a mug's game, but if a REIT's payout is rising over the long run, ultimately, its unit price should also climb. Now may be a good time to shop for REITs, because unit prices have fallen as government bond yields have crept higher.

Why index investors may be better off using a robo-adviser

Andrew Hallam writes that there are many investor who are doing ETFs on their own and feel that works for them, but the automatic rebalancing offered by robo-advisers can prove to be the key for investors looking to keep a balanced portfolio at a low cost.

Five things you should know about ETFs

For all the attention ETFs get, you might be surprised to know that just 31 per cent of investors hold them in their portfolios, writes Rob Carrick. That's one of the findings of a new survey by of exchange-traded fund usage by BlackRock, a big player in the ETF sector. Apparently, a lot of people are unfamiliar with ETFs and the way they're used.

Number Crunchers

Ten U.S. stocks looking well valued despite recent stock-market run-up

Twelve North American retail stocks that look like bargains

Six top-ranked Canadian REITs for retail investors

Ask Globe Investor

The Question:

How do I calculate the adjusted cost base (ACB) of shares that I bought in different accounts and prices? If I sell some shares, do I use the ACB only for the account in which the sale occurs, or do I use the ACB across all of my accounts? What if my wife also owns the shares?

The Answer:

You need to know your ACB in order to calculate your capital gain, or loss, when you sell your shares. Your ACB is based on shares purchased in all non-registered accounts in your name; you can exclude registered accounts – such as registered retirement savings plans and tax-free savings accounts – because no capital gains taxes apply in those cases.

For example, say in 2010 you bought 100 shares of BCE at $30 in a BMO InvestorLine non-registered account. Then in 2013, you opened a non-registered account at RBC Direct Investing and bought an additional 200 BCE shares at $45.

Your total ACB would be the $3,000 cost of the initial 100 shares plus the $9,000 cost of the additional 200 shares, for a total of $12,000 (plus any commissions incurred). Your ACB per share would be $12,000 divided by 300 shares, or $40 a share.

Now, say you decide to sell 100 shares of BCE at their current price of about $58. Your capital gain would be the sale proceeds of $5,800 minus the ACB of $4,000 on these shares ($40 times 100), which works out to $1,800 (minus any sale commissions). Your capital gain would be the same regardless of whether you sell the shares in your BMO or RBC account.

If your wife owns BCE shares in a separate non-registered account, these shares would not be included in your ACB or capital gain calculation. However, if you and your spouse hold BCE shares in a joint non-registered account, your share of the BCE stock – based on the proportion of the capital that you contributed to the joint account – would be included in your ACB, according to Dorothy Kelt of TaxTips.ca.

It's important to understand that your ACB per share does not change when you sell a portion of your shares. Returning to the example, the ACB of the remaining 200 shares would still be $40 a share, or $8,000 in total.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.


What's up in the days ahead

Get ready this weekend for Rob Carrick's Great Canadian Dividend Fund Smackdown! It provides a fund-by-fund breakdown to help you determine whether to buy D-series mutual funds or ETFs for your income investments.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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