Top Performing Canadian Stocks of 2020

These 10 names in our coverage universe had impressive returns, and some are still undervalued!

Ruth Saldanha 31 December, 2020 | 4:38AM
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Shopify company building

It’s been a wild ride for stock markets in 2020. Despite a bleak global economic outlook and the continued uncertainty brought on by the coronavirus pandemic, as of August, the stock market recovered to its pre-pandemic high. Using the concept of the “pain index” coined by Dr. Paul Kaplan, the COVID-19 bear market goes down in history as one of the least painful on record, lasting a total of about 120 trading days with a maximum drawdown of about 34%.

Which are the stocks that did best?

In our coverage universe of about 75 stocks, about half had positive returns for 2020. The 10 stocks that did best had returns of over 30% each, and the top two returned over 100%. In terms of sectors, two stand out – cannabis and wood/lumber production. Unsurprisingly, most of the underperformers are in oil and gas.

The best performing stock in our coverage universe was Shopify (SHOP) that returned a whopping 161%. The next best was one Cannabis company Green Thumb (GTII), which returned an eye-watering 118%. Green Thumb is one of four of our top 10 outperformers list that we think is still undervalued. Here’s the list:

Name Industry YTD Return (%) Morningstar Star Rating
Shopify Inc A  Software - Application 161.41
Green Thumb Industries Inc  Cannabis  118.22 
Curaleaf Holdings Inc Cannabis  86.67 
Canfor Corp Lumber & Wood Production  85.58 
Norbord Inc Lumber & Wood Production  66.37 
Aphria Inc Cannabis 50.44 
Kinross Gold Corp  Gold  50.31 
West Fraser Timber Co. Ltd Lumber & Wood Production  48.29 
Cameco Corp  Uranium  48.09%
BRP Inc Recreational Vehicles  33.98% 

Morningstar Direct Data as of Dec 14, 2020

As a reminder, the Morningstar Rating for Stocks, called the Star Rating, can help investors uncover stocks that are truly undervalued. The rating is determined by three factors: a stock's current price, Morningstar's estimate of the stock's fair value, and the uncertainty rating of the fair value. The bigger the discount, the higher the star rating. Four- and 5-star ratings mean the stock is undervalued, while a 3-star rating means it's fairly valued, and 1- and 2-star stocks are overvalued. The Morningstar Fair Value Estimate tells investors what the long-term intrinsic value of a stock is, helping them see beyond the present market price.

Let’s look at the four stocks that are still undervalued – Green Thumb Industries Inc, Curaleaf Holdings Inc, Aphria Inc and Cameco Corp. Three of these are in cannabis, while one is a uranium mining company.

As Morningstar analyst Kristoffer Inton points out, both American and Canadian cannabis stocks have risen in the week following the U.S. presidential election. “President-elect Joe Biden’s win combined with the successful passing of all cannabis referendums across five states have boosted optimism for further U.S. legal market growth. Legalization progress supports our forecast of nearly 25% average annual growth for the U.S. recreational market and nearly 15% for the medical market through 2030,” Inton notes.

Curaleaf, Aphria and Green Thumb are still among Inton’s top picks, along with Canadian producer Canopy.

For Cameco, Inton believes that short-term challenges aside, the long-term picture remains largely unaffected. “While the pandemic is expected to weigh on near-term energy demand, the global nuclear fleet continues to grow. Current spot prices aren’t high enough to sustain production levels necessary to meet long-term demand. We continue to forecast long-term prices of US$65 per pound, up from US$35 per pound in today’s relatively quiet contracting market. With few changes to our forecast, we maintain our fair value estimate of $20 per share for narrow-moat Cameco,” he says.

 

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About Author

Ruth Saldanha

Ruth Saldanha  is Senior Editor at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

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