Traders will be looking to another heavy slate of earnings from corporate Canada this week, with results largely concentrated in the financial, mining and energy sectors — the three main components of the Toronto stock market.
The gold segment will be in particular focus as three big companies report — Goldcorp Inc. (TSX:G) and Agnico-Eagle Mines (TSX:AEM) on Wednesday, while Barrick Gold Corp. (TSX:ABX) hands in its earnings the following day.
“They’re probably likely to report fairly good results, particularly when you compare them year on year,” said Chris Fehr, Canadian markets strategist at Edward Jones in St. Louis.
“There is certainly going to be a strong correlation between the performance of these companies on any given quarter and the price of gold itself.”
Gold prices hit a record high of more than US$1,900 in 2011 and have held steady around US$1,600 as the precious metal benefited from worries about higher inflation and the future of the euro.
“The most logical trade for the market most recently has been to flood into gold at times of extreme fear, going back to that store of value,” said Fehr.
“We’ve seen central banks around the world implement very easy monetary policy. The potential for that to create attention has certainly fostered the rise in gold prices.”
Major energy companies reporting include Nexen Inc. (TSX:NXY) on Thursday and natural gas company EnCana (TSX:ECA) on Friday. And like elsewhere in the segment, much has depended on what kind of energy these companies are involved in.
Oil prices have held steady around the US$100 mark, reflecting geopolitical concerns and steadily rising demand from developing countries, while abundant supplies and a mild winter in much of North America have pushed natural gas prices sharply lower.
“EnCana continues to be a good operator but we do think they will be the victim of very low natural gas prices in the near term,” said Fehr.
As for Nexen, “our expectation is that production will increase as Long Lake gets brought under control,” he said, referring to the company’s oilsands project near Fort McMurray, Alta.
Since it started up in late 2008, the steam-driven project has consistently lagged its design capacity of 72,000 barrels of oil per day due to a litany of operational glitches.
Nexen’s original partner at Long Lake, Opti Canada, filed for court protection from creditors last year and was later acquired by China National Offshore Oil Co. for $2.1 billion.
Nexen owns 65 per cent of the Long Lake development and operates it.
Fehr thinks another attractive element for the sector is that many energy stocks aren’t pricing in US$100 oil moving forward.
“We still think it’s pricing in something much lower,” he said.
“We think there is a compelling opportunity within the energy sector right now. You think about the global fears that are really dictating some of this, (and) the growth of China is going to have a direct impact on the price of energy moving forward.”
Also in the resource sector, investors will hear from Finning Corp. (TSX:FTT) on Wednesday. The Vancouver-based company is the world’s biggest dealer of heavy construction and mining equipment made by Caterpillar Inc.
The U.S. firm last month reported that quarterly profits jumped 60 per cent to US$1.55 billion, boosted by pent up demand for new equipment and continuing growth in developing countries. And Fehr thinks those results bode well for Finning.
“When you’re selling the product of the company that is doing quite well, you’re going to participate in that trend and we think that will be the case,” he said.
“They sell the equipment and then service it as well and that has high margins so it’s of benefit to them as well.”
In the financial sector, traders will look to results from Sun Life Financial.
Like other insurers, Sun Life has had a tough time because of a combination of very low interest rates and weak stock market performance, which diminishes their returns and increases the size of liabilities that stretch far into the future.
Rival Manulife Financial Corp. (TSX:MFC) disappointed investors last week after reporting a fourth-quarter loss of $69 million as it booked a charge of $665 million related to low interest rates.