TSX-listed stocks in for big profit jump this year: CIBC

S&P/TSX composite index 3-month chart

Companies listed on the TSX will see their profits jump by 21 per cent this year, according to an upgraded forecast from CIBC World Markets.

That's up significantly from last year's 12 per cent profit increase and the long-term TSX earnings average of a seven-per-cent gain.

The firm raised its profit projections for the companies in the S&P/TSX composite index, noting that profits for the first quarter were up about 17 per cent from the same quarter last year, slightly topping analysts' consensus.

That will slow to 10 per cent in the second quarter because of weakness in the U.S. economy and stagnant bank profits. But it sees a rebound in profit growth to almost 30 per cent in the second half of the year.

Energy and materials companies will lead the profit charge, CIBC said in its TSX earnings watch report. Profits at TSE-listed materials companies — which include gold miners, potash and base metals companies — are expected to surge by 82 per cent this year, it said. Energy company profits should rise by 56 per cent.

That strength will be more than enough to offset an expected five-per-cent drop in financial company profits and a 10-per-cent drop among telecoms.

The improving profit picture in Canada stands in sharp contrast to that in the U.S. "Analysts have been lifting their expectations for earnings growth north of the border, almost as aggressively as they have been wielding the knife stateside," said CIBC World Markets economist Peter Buchanan.

Profit margins are holding up well despite pressures from the high Canadian dollar, Buchanan said. He also has little time for the "mantra" that recent gains in resource prices have been mainly driven by speculation, arguing that inventories of oil and other commodities have not been ballooning.

The profit jumps among the TSX-listed resource companies have already propelled the benchmark index of the TSX to a record level of 15,000 this month and led to the TSX having the best year-to-date performance among the G-8 stock markets — up almost six per cent.

"Upgraded profit expectations suggest that Canadian equities, particularly recent winners like energy and material stocks, are likely to remain prime candidates for portfolio exposure over the next 12 to 18 months," Buchanan said.

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