Sid Mokhtari, chief market technician at CIBC Capital Markets.Supplied
The secular bull market remains intact, however, the positive momentum may pause in February on tariff uncertainties and seasonality, according to CIBC’s chief market technician Sid Mokhtari. He believes the S&P/TSX Composite Index may be range-bound and volatility may rise.
Each month, Mr. Mokhtari publishes ten stock recommendations based on his screening process. For February, his top 10 best ideas include eight new stocks: Alamos Gold (AGI-T), Boyd Group (BYD-T), Brookfield Infrastructure (BIP.UN-T), Chartwell (CSH.UN-T), Emera (EMA-T), Gildan (GIL-T), H&R REIT (HR-UN-T) and IAMGOLD (IMG-T). Bank of Montreal (BMO-T) and Brookfield Corp. (BN-T) were carried over from prior month.
In January, his basket of 10 stocks produced a return of 3.4 per cent, slightly outperforming the 3.26-pe- cent gain for the S&P/TSX Composite Index. In 2024, his stock screening process delivered a 23.8 per cent price return for the year, handily outperforming the 18 per cent return for the S&P/TSX Composite Index.
On Tuesday, The Globe and Mail spoke with Mr. Mokhtari and discussed his investment ideas identified by his proven screening process.
Tariffs and their implications for companies have come into focus for investors. Have you looked at stocks that could be vulnerable to a pullback?
In 2018, energy and consumer discretionary were the worst sectors in Canada after President Trump imposed the tariffs back then.
It was six months of a drawdown for the TSX index and peak-to-trough was about 16 per cent. All sectors were negative within that time frame of six months.
But the sectors that had positive alpha, in other words outperformed the TSX Index, they were very defensive. They were consumer staples, telecoms, real estate, utilities as well as banks.
Let’s dive into your Top 10 best ideas for February. It’s been a few months since we’ve seen a REIT on your Top 10 list. Last month, you noted that REITs were becoming oversold, and that they tend to rally during the RRSP season. This month, you added H&R REIT.
Correct. Also, Chartwell (CSH.UN-T), a real estate trust.
Also, I haven’t had many utilities, or bond proxies, in our matrix models and we’re beginning to see them emerging in our work. Emera (EMA-T) is trying to push to new highs. And we’re beginning to see other utility names like Hydro One (H-T) and Fortis (FTS-T) that are percolating higher in our matrix process.
There is that yield narrative, at least in Canada, that is being built back into momentum factors. I think it’s reasonable to say that when you look at the technical charts of 2-year Canada yield, as well as 5-year Canada yield, you’re seeing a top building pattern.
Last month, we were talking about how rates may push lower. We are seeing that with Canada government bond yields on the front end, the 2-year and 5-year, in particular. I think that’s why you’re seeing utilities and some of the bond proxies buoyed in our work.
Emera has an attractive yield.
It does, 5 per cent plus.
Where is there overhead resistance for Emera?
It’s a price discovery. In other words, we’re looking for new all-time highs. And if our estimation of momentum is correct, within the course of one to three months the price should be able to reach $58 to as high as $60.
The improvement that you are seeing in utility stocks is due to people searching for yield then, not due to a rotation out of growth and momentum factors?
That could be a very easy call made for the U.S. factors. In fact, when we look at our factor analytics and run all the ETFs that are associated with some quantitative factor being growth, low volatility, dividend yield, value, we are beginning to see value and dividend yield coming into our improving quads in the U.S. Growth and momentum as well as size and quality are still within our leading quad. So, we haven’t lost our leaders in our quad work. I think it’s just a market that is rotating within its factors, styles and sectors.
And for Canada, I think it could be very reasonable to say that the tariff narrative is starting to push the yield market in Canada lower, which is buoying some of these bond proxies.
I was surprised to see Boyd on your Top 10 best ideas list. Last year, the stock was a laggard, but the share price has been rebounding this year.
We wanted to make sure that we have good representation of our sectors, and that one shows well within the industrials sector in Canada.
There aren’t a lot of industrials that can pass our ranking in relative factors, and Boyd did pass in relative ranking, which is in the improving quad when we run it through our model. And it’s also mostly U.S. revenue line based and that’s another net positive.
What upside are you looking for with shares of Boyd? Last year, it went from around $300 down to the $200 level and is trying to rebound to the mid-$200s, which is why I’m assuming it showed up on your screen.
We see technical upside to $260. Technically, it has been diverging since the lows that we saw in the summer of last year. Irrespective of the fact that the price did drop lower, the indicators that gauge momentum, they managed to make higher lows, and that’s usually associated with a bottoming process. And the fact that Boyd managed to get above $227, to call it $230, it now is perceived as a double bottom condition that should be able to retrace a better move higher.
I’m encouraged that we have seen better volume in rally days and rally weeks relative to when it drops. That’s also been associated with accumulation tendencies.
This is a name that is giving us some positive attributes from an accumulation perspective, momentum perspective that has recently emerged, shift in moving averages that’s also developing, and the fact that it has a U.S. revenue dollar line.
Any stocks that were on the cusp of appearing on your top 10 list?
So, Thomson Reuters (TRI-T) would be one of them. It has an AI narrative behind it.
There are a lot of gold names that would have made it: Kinross (K-T), Agnico (AEM-T), IAMGOLD (IMG-T), Franco Nevada (FNV-T), K92 (KNT-T), Alamos Gold (AGI-T), Lundin (LUG-T). There are a lot of gold and silver names that are clearing. We could have had a lot more gold names in our basket, but we need to be balanced in terms of our representation of sectors.
Sometimes when you get an over clustering of one sector completely taking on leadership it does have that narrative of an overbought condition, a lot of chasing of momentum within one area that could make the sector or the group of stocks that may come into a basket susceptible to reversion.
Do you think that gold stocks are in overbought territory and susceptible to a mean reversion?
We like gold because the commodity itself has gone through $2,790, $2,800. That was the last high that we had for gold with the momentum peak observation. Having taken that out, now we’re in a new price discovery, which we can measure up to about $3,000, $3,040 on the upside.
I don’t think that gold stocks are yet to be perceived as an area where it’s extremely overbought. When we look at them collectively, some are becoming overbought, but not by a measure that we can say they’re susceptible to a big mean reversion.
The price of oil has been off to a volatile start in 2025. In mid-January, WTI was around $80 a barrel. Now, it’s back down to the low $70s. What’s your take on the move in the price of oil?
If I had to choose a commodity in the energy space, I would say natural gas is the one that clears it for us and that has been the case for a while. We often talk about ARC Resources (ARX-T) as well as Tourmaline (TOU-T) and Kelt (KEL-T), those are the kind of names that we’re going after on a regular basis.
But to answer your question about the oil commodity itself, it has been a range-bound commodity, and I think that posture remains unaltered.
The price range for oil is measured by its two standard deviation volatility or Bollinger Bands, and those bands on the downside are pegged closer to $65, $67 - that’s my low band. Midpoint of the range is between $75 and $77, and upper bands are at $80 to $83.
To your point, we went up to $80. We peaked in a lot of those indicators and now we are coming back down. If I have to make a call, I would say that we’re probably going to drift lower towards $70 and under again and retest the range lows.
What ETFs are ranking well?
The ETFs that are showing better emerging patterns in our work are tied to biotech and health care.
XLV (XLV-A) is an ETF of the broad-based healthcare sector that has been coming into our improving quad. So, every quad of ours is sub-quaded. Within each quad, you also have improving, leading, consolidating, and lagging and XLV is in the leading of our improving quad.
I would say RSPH (RSPH-A), which is again U.S. health care sector but on an equal-weight basis. It is also showing improving tendencies.
Other ETFs that are still showing well in our matrix process are ARK Innovation ETF (ARKK-A) with many of its constituents associated with the space industry, THNQ (THNQ-A) that have many of its members tied to global artificial intelligence products and processes, and IAI (IAI-A) that mostly represent the U.S. broker dealers.
Your Top 10 best ideas screens the largest 100 members based on market capitalization from the S&P/TSX Composite Index. Do you have a small or mid-cap stock idea?
Generally, I believe that a lot of gold and silver names are going to do well. The one name that shows up very well, that is clearing a lot of technical work for us is Vizsla Silver (VZLA-T). I know we like it fundamentally on the desk.
Downside risk management, avoiding torpedo stocks, can sometimes be more important than identifying the winners. Are there stocks or sectors that you believe are at risk to a potential technical breakdown?
Our matrix process does a reasonable job in risk management by keeping us out of the weaker ranking stocks.
We tend to manage the downside risk by our matrix-ranking process, which places the TSX Index members into different quads – leading, improving, consolidating, and lagging. We often show inhibitions toward the members that fall into our lagging-quad by recommending a lower position sizing. This process has often helped us avoid stocks that may continue to get weaker or detract alpha - underperform relatively.
For what it’s worth, we are noticing that both Bombardier (BBD-B-T) and Air Canada have entered our lagging-quad. Bombardier is subject to lack of visibility on the tariff situation, and Air Canada’s share price often tends to drift lower when the Canadian dollar becomes much weaker – less travelling abroad. Other names that are still stuck in our lagging-quad are Premium Brands (PBH-T) and Maple Leaf Foods (MFI-T), which are still showing a downtrend in their share prices. In general, we see more of the consumer cyclical GICS members in our Lagging-quad, which may be pricing in a weaker Canadian economy potentially.
Anything else that you think is important to mention to our readers?
I think we need to be very cognizant that until we get some kind of resolution from the recent negotiations surrounding the tariffs, the odds are that the TSX Index may be at best range-bound until March 4 – volatility may rise again approaching that date.
Additionally, it may merit noting that by all historical measures, February is the second weakest month of the year from a hit rate perspective – the frequency of positive return observations in February is low. In other words, we should not be surprised to see higher levels of volatility in February, particularly after a strong January.
Between now through to March 4th, we don’t think the TSX will be able to break out of its upper band that we saw recently.
What is the trading range that you anticipate for the S&P/TSX Composite Index?
The high was 25,875, so around 25,800, there’s a very strong band of resistance for the TSX Index. The lower band is marked closer to 24,500. So, that’s your range on the upper and lower bands, respectively.
This Q&A has been edited for brevity and clarity.