TSX cyclical stocks look ripe for rebound

Sun Nov 6, 2011 10:31am EST
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By Claire Sibonney

TORONTO (Reuters) - A torrent of dire euro zone headlines has sent investors scurrying for the safer corners of the Canadian stock market, but now may be the right time to start rotating back into risk.

More clarity on the outlook for Europe, combined with possible action by the European Central Bank (ECB) and the U.S. Federal Reserve to boost the economy are just two of the factors that could lift those stocks most geared to growth, say many market watchers.

"Investors need to play both offense and defense ... they probably need to be adding the more cyclical sectors at this point, we just don't think they should be at the same weight as (they are on the TSX)," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.

"At some point the market responds to the fact that we've seen better economic conditions, strong earnings growth and that many of the things that are uncertain are not new and different."

The Toronto Stock Exchange's defensive sectors, which make up just a small part of the benchmark composite index .GSPTSE have been the best performers of 2011.

Telecom shares .GSPTTTS, which have seen revenues from traditional fixed-line phone or cable operations boosted by higher growth mobile revenues, have led the charge so far, rising 11 percent this year.

Consumer staples .GSPTTCS, which include companies such as drugstore chain Jean Coutu (PJCa.TO: Quote) and convenience store operator Alimentation Couche-Tard Inc (ATDb.TO: Quote), have been the next best performer.

Health care .GSPTTHC and utilities .GSPTTUT, two other traditional countercyclical plays, have also outperformed by posting gains in a falling market, as has the real estate   Continued...