Why Canadian stocks could be in a sweet spot as markets churn higher

This week, Nvidia Corp. announced it would purchase US$5-billion worth of Intel Corp. stock. Photo by David Paul Morris/Bloomberg

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Rate cuts from the Federal Reserve and Bank of Canada helped keep markets moving higher this week, with an iconic chipmaker and Elon Musk’s Tesla Inc. among the names that made the headlines. The Financial Post explores those stories and more in The Week in Stocks.

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Stock of the Week: Intel Corp.

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Shares of Intel Corp. (Nasdaq:INTC) surged as much as 30 per cent this week, with most of the gains coming on Thursday after Nvidia Corp. announced it would purchase US$5-billion worth of the beleaguered computer components producer and chipmaker’s shares. Nvidia also said it would jointly develop a data centre and other projects with Intel. The move comes weeks after the United States government took a 10 per cent stake in the company as it looks to boost semiconductor manufacturing at home. But analysts at TD Cowen think the deal represents a way for Nvidia to get the U.S. administration to unlock chip licences for the Chinese market. “We view today’s news of Nvidia meaningfully supporting a top Trump priority — reviving Intel — as a potentially significant step toward Nvidia winning over the MAGA transactional advisers and gaining Blackwell licences for China,” Paul Gallant said in a note. Blackwell is the name of a type of Nvidia chip. As for Intel’s shares, several major investing houses hiked their price targets, including Roth Capital Partners LLC, which lifted its target to US$30 from US$22, while Cantor Fitzgerald LP increased its price target for the shares to US$36 from US$26. Shares were trading Friday around the US$30 level.

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Buy on the dips in the U.S. and believe in Canada, says BMO

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“Canadian equities remain well-positioned to keep pace with the U.S. … period,” BMO Capital Markets chief investment strategist Brian Belski said in a research paper updating the bank’s best investment ideas strategy. Canadian stocks are at the tail end of an earnings recovery that started in mid-2024, with profitability normalizing and growth now expected to reach double digits. “Despite narrowing valuation divergence of Canada versus the U.S., we continue to believe the Canadian small-cap universe is undervalued, underinvested and ripe with growth opportunities, even relative to their large-cap peers,” he said. With markets in the U.S. and Canada hitting fresh highs, worries about stocks being overpriced compared with earnings have especially dogged U.S. markets. However, Belski thinks the Wall Street bull market will continue to charge ahead and recommends investors “stay the course and use any potential periods of market weakness as a buying opportunity.” He also said U.S. stock gains are spread more broadly beyond the Magnificent Seven, whereas previous gains had been more concentrated. Belski believes there are opportunities for investors in the small- and medium-cap names. BMO analysts added new names across several sectors, from energy and health care to real estate and utilities. The updated “best of” list for financials is comprised of all new names, including Canadian Imperial Bank of Commerce (TSX:CM), Cincinnati Financial Corp. (Nasdaq:CINF), Goeasy Ltd. (TSX:GSY), Manulife Financial Corp. (TSX:MFC) and TransUnion (NYSE:TRU).

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Tesla on a tear

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Elon Musk’s messy falling out with Donald Trump hasn’t slowed down shares of Tesla Inc. (Nasdaq:TSLA). Since those few days back in March when the bromance between the world’s richest person and the world’s most powerful one publicly fell apart, Tesla’s stock is up 88 per cent. Musk’s purchase this week of US$1 billion in shares resulted in a modest two per cent pop, but helped push the stock’s two-week gain above 20 per cent. The shares are now currently trading around US$425, well above the 12-month consensus price target of US$317.13, according to Bloomberg, but there are lots of moving parts to the Tesla story. Tesla’s board earlier this month dangled a potential US$1-trillion payday in front of Musk based on hitting several targets, including robotaxi uptake, but U.S. transportation regulators have opened an investigation into reports that faulty doors on Teslas can leave people trapped in the vehicles if power is lost. Itay Michaeli, an analyst at TD Securities, has a price target of US$374 on Tesla shares and a buy recommendation on the premise that the autonomous vehicle ride-sharing sector has left the gate and is “scaling faster than expected.” Investment houses that have some of the higher price targets include Morgan Stanley at US$410 and DBS Bank at US$450. JPMorgan Chase & Co., at US$115, has one of the lowest price targets on Tesla.