In the first half of 2014, stocks in Canada were rolling right along and outpacing the gains of the main U.S. indexes. Before closing down in the month of May because of a poor showing in the final week of the month, the TSX Composite index had risen the first four months of the year to run its string of consecutive advancing months to 10. After the May pause, the Composite went back on the rise, including breaking over 15,600 for the first time ever in August to have a gain of nearly 15% through the first eight months of 2014. The smaller TSX Venture Composite index was performing nicely as well, with gains of just over 10% on the year at the same time.
Then, the wheels started coming off for the resource-heavy Venture and the TSX Composite started to suffer as well with sinking prices for oil, the nation’s largest export, the Canadian dollar falling further against the greenback and metal prices stagnating on the bottom. The decimation of oil prices, which fell about 50% from their June high above $107 U.S. per barrel, were an albatross on the neck of the Toronto exchanges, considering that the TSX Composite has about a 21% energy sector weighting. The TSX Composite subsequent to August closed down in three of the last four months of the year to pare gains to 7.42% on the year. That’s nothing to sneeze at, but a far cry from where the index looked like it was heading when printing record closes and an all-time intraday high of 15,685 a few months prior.
Looking at other leading commodities, gold fluttered around and eventually lost 1.48% across the year. Silver prices fared much worse, shedding 19.34% to end 2014 at $15.599 U.S. per troy ounce. Copper ran alongside silver, losing 17.93% to $2.825 U.S. per pound at the end of the year.
The Venture was a more dismal story than the TSX Composite, erasing gains with lightning speed by closing in the red in the final four months and falling below levels from during the height of the global financial crisis in late 2008. In fact, the index dropped near its lowest level ever, only surpassed by the opening days of the index’s trading back in 1999. At one point late in December, the Venture was only about 10 points away from printing an all-time low before staging a recovery. When the final bell of 2014 rang, the Venture had lost 237 points, or 25.37% of its value, for the year. From a post-Great Recession peak of 2,464 in March 2011, the Venture is off by 62%. At AllPennyStocks.com, we’re fans of junior companies, but the Venture reinforced the lesson that just because stocks have been pounded, doesn’t mean that they have to immediate forge a rebound.
Much like its U.S. counterpart, the Bank of Canada continued holding its key interest rate at 1%, where they’ve been since September 2010, in a bid to stimulate the economy while keeping a close eye on inflation levels. Inflation remained tame throughout 2014, only peaking above the main bank’s 2% annual target in the latter part of the year, a rise that most considered to only be temporary. In fact, the bank’s Monetary Policy Report presented in October showed the bank estimating the Consumer Price Index to drop to 1.8% in 2015, compared to the current level of 2.4%, while also noting that a further drop in oil prices will further anchor inflation.
Throughout the year as inflation was low, there were mumblings about the Bank of Canada possibly lowering interest rates to try and further spur along the economy.
The nosedive in oil prices, however, put an end to any of that thinking as Bank of Canada Governor Stephen Poloz estimated early in December that diving oil prices could trim at least one-third of a percentage point of economic growth in 2015. It’s worth noting that oil has sunk about 10% more since the Governor’s estimate. This leaves the bank in a somewhat precarious position as economic data has shown a strengthening economy, a housing market that remains resilient and slowly increasing inflationary pressures, which cumulatively are supportive of a rate hike.
The overhang from oil, though, will have the central bank moving cautiously with any rate decisions.
With respect to the labour market, the nation saw fluctuations, but overall made progress in the past year. After ending 2013 with an unemployment rate of 7.2%, that figure was chiseled down to 6.6% through November 2014 (the latest data available), as the nation added 146,000 jobs year-over-year.
2014 will also be remembered as the year the world lost beloved Conservative Finance Minister Jim Flaherty. Flaherty, who is widely acknowledged for taking firm measures to steer Canada in the right direction through the Great Recession, stepped down from his position in March. He passed away less than a month later of a sudden heart attack at age 64. Prime Minister Stephen Harper, who admittedly accepted Flaherty’s resignation with "great reluctance," named Energy Minister Joe Oliver as Flaherty’s successor.
Canadians also dealt with a shocking attack on Parliament on October 22 when Michael Zehaf-Bibeau shot and killed Cpl. Nathan Cirillo as he stood guard at Canada’s National War Memorial before firing shots in the halls of Parliament and ultimately getting gunned down himself.
Canada saw its fair share of political drama in 2014. Toronto Mayor Rob Ford was diagnosed with cancer, admitted to addiction problems and dropped out of the race in his bid for re-election to watch John Tory take the lead job in Toronto. Alison Redford resigned her posts as premier of Alberta and as a Conservative member of the legislature against the backdrop of allegations of improper conduct and mishandling expenses. More than three years after the "robocall scandal," a judge sentenced Conservative campaign worker Michael Sona to nine months in jail and one year probation for his actions in trying to send voters to the wrong polling location in Guelph in the federal elections of 2011.
In Quebec, the debate over the province becoming a sovereign nation heated up again and included media mogul Pierre Karl Peladeau joining the race as a Parti Quebecois candidate, a move that many believed might lead to a PQ victory and likely a referendum on sovereignty.
That didn’t happen as Philippe Couillard’s Liberal party swept through the elections, taking power with 70 of 125 seats and leaving PQ with only 30.
On the regulatory front, Canada's Federal Finance Minister Joe Oliver said in July that New Brunswick and Saskatchewan are lending their support to a federal proposal to create a national securities regulator. In July, Prince Edward Island joined Ottawa’s move. Ontario and British Columbia had already announced their support, although Quebec and Alberta are still holding out. Canada, which has the sixth-largest stock market in the world, is the only G20 country without a national body policing the financial markets, instead being regulated currently by a patchwork of 13 different regional regulators. Draft legislation for the cooperative securities regulator has been the topic of intense scrutiny by some, while others are extremely supportive in trying to work towards finalizing details on the initiative.
Some big transactions transpired – or are in the course of transpiring – with Canadian-based companies throughout 2014. Perhaps the most high profile was the player in the merger and acquisition space, Valeant Pharmaceuticals (TSX:VRX).
Early in the year, Valeant closed its $250-million acquisition of Solta Medical and followed that weeks later saying it was buying PreCision Dermatology for $475 million. Bigger news came in May, when Nestle (OTC:NSRGY) said it was buying the commercial rights to Valeant’s filler and toxin products (Restylane, Perlane, Emervel, Sculptra and Dysport) for $1.4 billion. In the biotech space, these are not huge deals and Valeant probably wouldn’t even be a part of this yearly recap, except for what it didn’t get accomplished: acquiring Botox maker Allergan Inc. (NYSE:AGN). Valeant went hard after Allergan, offering to buy the company in a cash-and-stock deal valued originally at $46 billion, an offer that was raised and raised again to $53.5 billion as the takeover attempt went hostile spearheaded by Allergan’s largest shareholder billionaire activist investor Bill Ackman.
Originally put in motion in April, the battle waged on most of the year and got real hairy when Irish generic drugmaker Actavis PLC (NYSE:ACT) entered the picture late in the year. Actavis eventually won the bid, agreeing to acquire Allergan for $66 billion in November, effectively putting an end to Valeant’s takeover effort.
Another big deal from Canada involved Oakville (a suburb of Toronto)-based Tim Hortons (TSX:THI) being acquired by Burger King Worldwide (NYSE:BKW) for $12.6 billion in a cash and stock transaction that created the third-largest fast food company in the world. Structured as a so-called tax inversion, Miami-based Burger King is moving its tax base to Toronto, which should save the company on taxes each year.
Canada's largest private equity firm, Onex Corp. (TSX:OCX), said in November that it is buying Swiss food packaging company SIG Combibloc Group AG for as much as $4.66 billion. Onex will pay $4.43 billion at the close of the transaction for SIG and up to an additional $217 million if the company meets certain financial milestones during 2015 and 2016. SIG is owned by Reynolds Group Holdings Limited, backed by New Zealand's richest man, Graeme Hart.
In June, Canada’s biggest engineering and construction company SNC-Lavalin Group (TSX:SNC) made its largest purchase yet in agreeing to buy British energy services provider Kentz Corp for about $2.11 billion in cash. Setting itself up to be able to fund the deal, SNC-Lavalin in May sold its AltaLink power-transmission unit to Berkshire Hathaway (NYSE:BRK.B) for $2.9 billion.
Montreal's Amaya Gaming Group Inc. (TSX:AYA) had a spectacular year, rising from around $8 per share to as high as $39.25 per share (and still holding around $28).
In June, Amaya agreed to buy Oldford Group, the company that owns PokerStars and Full Tilt Poker, for $4.9 billion in an all-cash deal, creating the world's biggest publicly traded online gaming company. At the time of the deal announcement, PokerStars and Full Tilt Poker had more than 85 million registered players on mobile devices and desktop applications.
Hudson's Bay Company (TSX:HBC), who acquired the Saks department store chain for $2.4 billion in 2013, surprised investors in saying that the building of it Saks flagship store on Fifth Avenue in Manhattan was valued at $3.7 billion, making it the most valuable retail building in the world. With the valuation, HBC secured a $1.25-billion, 20-year loan at a fixed rate of only 4.4%, using part of the cash for a $250-million renovation on the iconic building. According to The deal’s sources, Hudson’s is now eyeing Dillard’s (NYSE:DDS) as a potential acquisition target, in part because of its valuable real estate holdings.
It wouldn’t be a rounded look back at the year in Canada without mentioning Blackberry (TSX:BB) still trying to turn itself around. In December 2013, the smartphone maker hit a 10-year low at $5.78, but climbed again into double-digits on a litany of developments. Namely, the company launched a new line of phones, kept its contract with the U.S. Department of Defense, struck a deal with Amazon
(NASDAQ:AMZN) to offer some 240,000 Android apps from Amazon’s app store for its BlackBerry devices, said it was selling its research and development department in Germany to Volkswagen Infotainment (a subsidiary of VW that manufactures interactive technology built into vehicle dashboards), partnered with Samsung (OTCQX:SSNLF) to use BlackBerry’s encryption services, expanded its efforts in India, and told the world that part of the turnaround is done and it will now focus on profitability. That’s not a bad year for a company many people thought was dead in the water not too long ago.
Pipeline operator TransCanada (TSX:TRP) is still plugging away at building its controversial Keystone XL pipeline, a megaproject that will move oil from Alberta to refineries on the U.S. Gulf Coast. It has been a battle to say the least for TransCanada as regulators review the environmental impact of the pipeline, but a step was taken forward last January when the first crude oil was shipped on the southern portion of the pipeline. A win by Republicans to take control of the U.S. Senate is also generally viewed as favorable for eventual approval of the pipeline. A vote last month before the Republicans took control narrowly didn’t pass.
Although relatively small in comparison to other transactions, another acquisition battle that had investors’ attention because it took months to arrange, Montreal-based dairy giant Saputo Group (TSX:SAP) finally put an end to its battle to take control of Australia's Warrnambool Cheese and Butter, emerging victorious in the bidding war by agreeing to buy the Murray Goulburn Co-Operative's shares for about AU$92.8 million in cash. The months-long fight between Saputo and Australia's Murray Gouldburn and Bega Cheese was tilting in Saputo's favour when it bought Bega's 18.8% stake in Warrnambool. The acquisition gave Saputo majority control of the cheese company at 52.7%.
It was another busy year for the Toronto markets, although it ended a little sour compared to the bountiful first half of 2014. The bottom line is the mining industry hasn’t had much great happening lately, especially with major metal consumer China still going through an economic slowdown. Oil has obviously taken a pounding. The Toronto markets are more than just energy and miners and the bigger TSX Composite demonstrated that in 2014. There are certainly challenges in front, but the Bank of Canada is still projecting subsequent rises in GDP in the coming years and robust demand for products from the United States will help on that front. As always, there are a lot of influencing factors, such as the housing market remaining firm (although overvalued by many metrics), consumer debt coming under control (although near all-time high levels) and metals and oil prices stabilizing, so it certainly doesn’t look like 2015 is going to be a dull year.
