The Canadian Core Buy list outperformed the S&P/TSX 60 Index during August, posting a total return that came in at -1.2% to the benchmark's -4.3%. The Core Buy list retains its cumulative outperformance against the benchmark with a total return since inception of 155.2% versus 93.8% for the S&P/TSX 60, a difference of 61.4 percentage points.
The top performers for the period were Canadian Imperial Bank of Commerce CM and Cameco CCO, with total returns of 3.5% and 3.1%, respectively. These gains were offset by weaker performance from Canadian Pacific Railway CP and National Bank of Canada NA, with -9.2% and -5.3%, respectively.
Our analyst coverage of energy sector companies remains under review while our oil mid-cycle pricing assumptions are reevaluated. Although we continue to believe that crude oil futures prices are well below the levels required to encourage sufficient investment to meet demand beyond 2017, recent industry developments point toward our current long-term oil price outlook of US$75 Brent and US$69 West Texas Intermediate as being too high.
Two developments underpin our decision to adjust our long-term pricing outlook. First, cost-advantaged supply continues to grow, thanks to ongoing productivity improvements across U.S. tight oil plays as well from sanctions relief that will result from the Iran nuclear deal. Further, our originally anticipated point of global supply and demand coming into balance continues to get pushed further into the future, and it appears increasingly likely that crude markets will not approach any semblance of normalcy until 2017. This, in turn, has led to a collapse in near-term investment that has unleashed cost and currency deflation exceeding our previous expectations, resulting in lower industry break-even levels across the board.
While we continue to believe that the vicious sell-off of energy stocks has created a handful of compelling opportunities for long-term investors, the industry hasn't faced a downturn of this magnitude since the 1980s. Tremendous uncertainty exists as to how commodity prices will trend over the next several quarters. Accordingly, investors should be both discriminating in their stock-picking and duly prepared to weather additional volatility as the industry embarks on what is likely to be a long recovery process. As a result, Suncor Energy SU and Tourmaline Oil TOU were removed from the Consider Buy list, and Enbridge ENB and TransCanada TRP were removed from the Consider Hold list.
Our model recommended several additional changes to September's Core Pick list. Canadian Imperial Bank of Commerce was moved from the Core Buy list to the Core Hold list, while Bank of Montreal BMO was elevated to the Core Buy list from the Core Hold list. CI Financial CIX and Restaurant Brands International QSR were newly added to the Core Buy list, and Valeant Pharmaceuticals International VRX was shifted to the Core Hold list from the Core Sell list.
A recap of stocks on this month's Consider Buy List
Bank of Montreal was added to the list this month. The stock trades at a 23.7% discount to our fair value estimate of $93.
Cameco Corp remains on the list from last month. The stock trades at a 38.3% discount to our fair value estimate of $30.
Canadian Pacific Railway Ltd remains on the list from last month. The stock trades at a 7.7% discount to our fair value estimate of $207.
CI Financial Corp. was added to the list this month. The stock trades at a 17.2% discount to our fair value estimate of $38.
National Bank of Canada remains on the list from last month. The stock trades at a 32.3% discount to our fair value estimate of $64.
Potash Corp of Saskatchewan Inc remains on the list from last month. The stock trades at a 34.1% discount to our fair value estimate of $52.
Restaurant Brands International Inc. was added to the list this month. The stock trades at a 8.2% discount to our fair value estimate of $55.
Rogers Communications Inc Class B remains on the list from last month. The stock trades at a 6.4% discount to our fair value estimate of $48.
The Canadian Income Buy list outpaced the S&P/TSX 60 index during August, posting a total return of 0.3% to the benchmark's negative 4.3%. The outperformance of the Buy list was primarily driven by Peyto Exploration & Development PEY and AGF Management Ltd. AGF.B, with total returns of 10.6% and 4.5%, respectively. These gains were partially offset by poor performance from TransCanada TRP, which posted a total return of -9.7%.
The Income Buy list has generated a cumulative return since inception of 156.5%, while the S&P/TSX 60 benchmark returned 93.8% over the same period, a difference of 62.7 percentage points.
As a result of the aforementioned uncertainty in the energy sector, ARC Resources ARX, Peyto Exploration & Development and TransCanada were removed from the Income Buy list, and Enbridge ENB and Suncor Energy SU were removed from the Income Hold list.
Our model recommended several additional changes to our Income Pick list for September. National Bank of Canada NA and Fortis FTS were elevated from the Income Hold list to the Income Buy list, and Ritchie Bros Auctioneers RBA and Cameco CCO were newly added to the Income Buy list. Canadian Imperial Bank of Commerce CM was repositioned from the Income Buy list to the Income Hold list.
A recap of stocks on this month's Consider Buy List
AGF Management Limited remains on the list from last month. The stock offers a dividend yield of 5.1% and trades at a 22% discount to our fair value estimate of $8.
Cameco Corp. was added to the list this month. The stock offers a dividend yield of 2.2% and trades at a 38.3% discount to our fair value estimate of $30.
Fortis Inc. was added to the list this month. The stock offers a dividend yield of 3.8% and trades at a 3.5% discount to our fair value estimate of $37.
IGM Financial Inc remains on the list from last month. The stock offers a dividend yield of 6% and trades at a 16.3% discount to our fair value estimate of $45.
National Bank of Canada was added to the list this month. The stock offers a dividend yield of 4.8% and trades at a 32.3% discount to our fair value estimate of $64.
Potash Corp of Saskatchewan Inc remains on the list from last month. The stock offers a dividend yield of 5.6% and trades at a 34.1% discount to our fair value estimate of $52.
Ritchie Bros Auctioneers Inc. was added to the list this month. The stock offers a dividend yield of 2.3% and trades at a 6.8% discount to our fair value estimate of $39.
Rogers Communications Inc Class B remains on the list from last month. The stock offers a dividend yield of 4.3% and trades at a 6.4% discount to our fair value estimate of $48.
