Financial Insights That Matter
We recently published a list of 10 Cheap Canadian Stocks to Buy According to Analysts. In this article, we are going to take a look at where The Bank of Nova Scotia (NYSE:BNS) stands against other cheap Canadian stocks to buy according to analysts.
In January, RBC Global Asset Management released its Market Outlook for Canada. Scott Lysakowski, the Managing Director & Senior Portfolio Manager, Head of Canadian Equities reflected on the Canadian market’s performance in 2024. He noted that the Canadian equity market, particularly the S&P/TSX Composite Index, experienced a notable year. The TSX achieved a total return of approximately 21%, which Lysakowski thinks is commendable, especially considering the broader economic context. However, this performance was somewhat overshadowed by the US market, where mega-cap stocks led the charge. The TSX’s gains, while substantial, were not as robust as those in the US, which Lysakowski attributed to the dominance of large-cap stocks in the latter part of the year.
Lysakowski noted that one interesting observation from 2024 was the brief increase in market breadth following significant events, such as elections. During these periods, mid-cap and small-cap stocks temporarily outperformed, suggesting a potential shift towards broader market participation. However, this trend was short-lived, and the year concluded with mega-cap stocks once again driving the majority of returns. The top ten stocks in the market contributed significantly to the overall performance, highlighting the persistent dominance of these large players.
Moreover, in analyzing the composition of returns for the TSX, Lysakowski suggests that it’s clear that the 21% total return consisted of a 3% dividend yield, with the remaining 18% split between earnings growth and valuation changes. Specifically, earnings growth accounted for about 9%, and multiple expansions contributed around 7%. In contrast, the US market, particularly mega-cap stocks, saw more pronounced earnings growth and multiple expansions, which explains their superior performance.
Looking ahead to 2025, Lysakowski noted that the outlook remains uncertain, partly due to macroeconomic factors such as the weakness in the Canadian dollar. This currency volatility is a significant concern for Canadian equities, as it impacts both investor sentiment and the macroeconomic outlook. Furthermore, the divergence in earnings growth between mega-cap and small-cap stocks suggests that until smaller companies demonstrate stronger earnings growth, the dominance of large-cap stocks will likely continue. This dynamic will be crucial to monitor in the coming year, as broader market participation could have a positive impact on Canadian equities.
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