10 best performing stocks in the S&P/TSX Composite index

It has been a troubled year for Canadian stocks, with only 87 stocks of the 250 in the index in the green

Ruth Saldanha 2 January, 2019 | 6:00PM

The S&P/TSX Composite Index fell over 10% in 2018, almost 13% on a price return basis. Fewer than 15 stocks in the S&P/TSX 60 closed the year in the green. Of the total of 250 stocks in the Composite index, less than 90 were in the green.

2019 is unlikely to be much better, as some portfolio managers expect challenges to continue.

“We’re underweight Canada because of some of the short-term challenges that you alluded to. Some of them have to do with trade, some of them have to do with the dislocation in the energy sector right now and shrinking manufacturing base. So, we just don’t see the growth in Canada that we see in other areas”, says Ian Riach, senior vice president and portfolio manager of multi-asset solutions at Franklin Templeton Investments.

Despite the volatility of 2018, some stocks managed to give positive returns. Here is a look at the 10 that fared best in 2018 on a total return basis according to Morningstar Direct data.

Name Ticker Total 1-yr Return (%) Industry MStar Rating
Nevsun Resources NSU 94.44 Industrial Metals & Minerals -
Kirkland Lake Gold KL 79.40 Gold -
Oceana Gold Corp OGC 50.44 Gold -
MEG Energy Corp MEG 48.05 Oil & Gas E&P ***
SSR Mining Inc SSRM 45.17 Gold -
Canada Goose Holdings Inc GOOS 43.69 Apparel Manufacturing -
Shopify Inc A SHOP 43.20 Software - Application ***
Great Canadian Gaming Corp GC 41.34 Gambling -
Cameco Corp CCO 31.87 Industrial Metals & Minerals ****
Canopy Growth Corp WEED 25.25 Drug Manufacturers - Specialty & Generic -
Data as of 12/31/2018. Source: Morningstar Direct

The top-performing fund of the year is Vancouver-based Nevsun Resources (NSU), which was up close to 100% in 2018. In the last week of the year, Chinese firm Zijin Mining announced that it would acquire Nevsun at $6 per share, in a deal valued at around $1.86 billion. Earlier in the year, Nevsun had rejected a bid by Toronto-based Lundin Mining Group.

Of the stocks covered by Morningstar analysts, the top performer was Alberta-based MEG Energy Corp (MEG), which was up close to 50% in 2018. However, the stock is likely to be affected negatively by the Alberta-government’s planned production cuts, says Morningstar senior equity analyst Joe Gemino, who reduced his fair value estimate for the stock to $7.

“The production cuts are short-term and we see them as a bridge to boost heavy oil prices until pipeline expansion projects are placed into service. We think this move benefits producers who have limited pipeline commitments, such as Cenovus Energy, while hampering producers, who are planning to bring on production during 2019, such as MEG Energy and Suncor Energy,” he said.

On Dec. 2, Alberta Premier Rachel Notley announced production cuts of 325 thousand barrels per day of crude oil and bitumen in Alberta. The cuts become effective Jan. 1, 2019 and extend throughout 2019.

Of the top performers, only one is rated 4-stars, indicating that the stock is undervalued. The stock is Cameco (CCO), one of the world’s largest Uranium producers and miners. “Amid production cuts, falling producer inventories, and the construction of new reactors, the uranium supply and demand balance will continue to improve, and low-cost producer Cameco remains well positioned for the ongoing uranium market recovery,” notes Morningstar equity analyst Kristoffer Inton.

He pegs the stock’s fair value at $25.50 per share, and says that the shares look undervalued as the uranium price recovery remains in early stages.

He notes that Cameco warns that long-term contracting has not returned in meaningful quantities, leaving prices too low to restart any production. In addition, a number of financial investors who’ve acquired uranium as an investment during the downturn will still need to unload their inventory, which will probably weigh on the spot market's recovery for some time. While the ongoing recovery has yet to hit long-term prices and thus Cameco’s contracts, more attractive market conditions are yet to come, says Inton.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cameco Corp11.23 CAD-4.02
Canada Goose Holdings Inc49.10 CAD-6.67
Canopy Growth Corp33.15 CAD-1.04
Great Canadian Gaming Corp38.57 CAD-1.58
Kirkland Lake Gold Ltd62.94 CAD4.17
MEG Energy Corp4.61 CAD-7.98
OceanaGold Corp3.13 CAD5.74
Shopify Inc A508.41 CAD-1.67
SSR Mining Inc16.70 USD7.46

About Author

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca