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What National Bank sees as strengths and vulnerabilities for the TSX, which stocks RBC added to its market-weighted portfolio of best ideas and more from The Week in Stocks.
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Stock of the week: BRP Inc.
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Shares of BRP Inc. (DOO:TSX) were among the top gainers on the S&P/TSX composite index, up nine per cent after the Sea-Doo and Ski-Doo maker reported earnings that beat estimates on a smaller than expected loss per share. This was primarily due to strong sales of its utility off-road vehicle (ORV). The Valcourt, Que. company also updated guidance for 2027 on a smaller than expected hit from changes to Section 232 U.S. tariffs on steel, aluminum and copper. The company said it has introduced new models, which are not subject to the tariffs, while all-terrain vehicle tariffs have dropped to 15 per cent from 25 per cent. BMO Capital Markets analyst Tristan Thomas-Martin hiked his price target for BRP to $110 from $100 and said in a note on Sept. 4 that the latest quarter “encapsulates the BRP story for us – Utility ORV share capture plus a strong lineup of upcoming new products which have been well received by dealers.” Shares closed Friday at $93.06. RBC Capital Markets analysts Sabahat Khan had the highest price target among analysts on Bloomberg at $113 which he set at the end of May and maintained on Sept. 4 implying a potential 21 per cent gain from Friday’s close. Stifel Global Research analyst Martin Landry hiked his price target for BRP to $90 from $85 on Sept. 3 with a hold rating but said in a note he believes that BRP’s “valuation is full.” BRP has a 12-month price target of $101.40 based on the calls of 14 analysts, according to Bloomberg.
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Keeping score
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TSX strengths and vulnerabilities, per National Bank
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The TSX, which reached a fresh record in August, sports less exposure to artificial intelligence than the U.S. S&P 500 index and, as a consequence, less “vulnerability” to climbing bond yields, said National Bank of Canada in its September report on stock markets. AI companies have been issuing mountains of debt, which are vulnerable to rising yields that increase borrowing costs. However, the report authors, Stéfane Marion, Matthieu Arseneau and Alexandra Ducharme, said that de-escalation on the trade front is key to the TSX — up 28.7 per cent this year — continuing to perform. National Bank reviewed its asset mix, maintaining its Canadian equity allocation at 21 per cent, just above the benchmark of 20 per cent. It set U.S. equities at 20 per cent, foreign equities and emerging market equities at three per cent each (just below the five per cent benchmark), fixed income at 48 per cent and cash at five per cent. National is also maintaining above benchmark holdings in energy, industrials and materials “to benefit from Ottawa’s renewed focus on resource development and reindustrialization,” the authors said. Energy accounts for a 16.6 per cent weighting in the equity portion, with most of that directed at oil, gas and consumable fuels. In industrials, nearly five per cent is weighted toward transportation with the rest split between commercial and professional services and capital goods, while much of materials is allocated to gold.
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What RBC added to its market-weighted portfolio of best ideas
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RBC Capital Markets reviewed its market-weighted portfolio of best ideas and made a few changes to the model, which holds 52 names traded on the TSX. RBC added four new names: Canadian Natural Resources Ltd. (CNQ:TSX), Nutrien Ltd. (NTR:TSX), Ovintiv Inc. (OVV:TSX) and Whitecap Resources Inc. (WCP:TSX). On Canadian Natural: “We view CNQ as the benchmark amongst producers in Canada,” RBC analyst Greg Pardy said in the report. The company currently returns 75 per cent of free cash flow to investors and Pardy expects that to increase to 100 per cent in early 2027. RBC has a price target of $79. Shares closed Friday at $69.78. On Nutrien: “Valuation appears attractive at current levels given solid cash generation outlook,” RBC analyst Andrew Wong said. He has a price target of $118.44. Shares closed Friday at $110.10. On Ovintiv: “Ovintiv has delivered impressive operational/financial performance over a series of quarters, yet its relative valuation has yet to reflect that,” Pardy said. He likes that Ovintiv has focused its portfolio around the Montney and Permian basins and said that strong performance coupled with an updated shareholder return model should “close the valuation gap.” Pardy has a price target on Ovintiv of $117.62. Shares closed Friday at $89.57. On Whitecap Resources: “Whitecap offers … a track record of improving well results, cost reductions, and consistent outperformance against guidance,” RBC analyst Michael Harvey said, adding he thinks Whitecap is positioned for acquisitions and further share buybacks. Harvey has a price target of $20. Shares closed Friday at $17.98. Other changes to the portfolio included weighting increases to Barrick Mining Corp. (ABX:TSX), Franco-Nevada Corp. (FNV:TSX), Weightings were decreased for Alamos Gold Inc. (AGI:TSX), BCE Inc. (BCE:TSX) and Enbridge Inc. (ENB:TSX). Cascades Inc.(CAS:TSX) was dropped after shares gained 50 per cent over three months. RBC’s market-weighted portfolio returned 4.3 per cent over the past three months against 4.9 per cent for the TSX.