Bank of America Says Buy Canadian Stocks Amid Commodity Boom

With its energy and materials sectors making up more than 30% of the market, the global commodity crunch sent the S&P/TSX Composite Index up 0.9% this year, outperforming the S&P 500 Index by 10 percentage points.

Oil and gas stocks and miners are the best-performing groups on the Canadian benchmark index this year, with copper miner Turquoise Hill Resources Ltd. in the top spot, gaining 73%. Energy companies like Baytex Energy Corp., Vermilion Energy Inc. and Canadian Natural Resources Ltd, are among the top five gainers, all rising more than 50% each this year.

What’s more, the rally could have much further to run. Bank of America says that the S&P/TSX could fly as high as 24,550 points this year, hurdling past its record closing high of 22,087 points on March 29. Even after the gains this year, the market is trading at its steepest discount since the tech bubble, with the S&P/TSX valued at a forward price-earnings basis versus the S&P 500 at 0.74 times, according to Bank of America.

“We believe the discount is overdone, especially as earnings are expected to grow much faster for the TSX (+23% in 2022) versus our +6% forecast for the S&P 500,” the analysts said.