October 19, 2008 / 2:35 PM / 9 years ago

Buying opportunities could be close

TORONTO (Reuters) - Brace yourself, but there’s more bad news coming for Toronto stocks.

<p>A Bay Street sign is seen at the financial district in Toronto, October 10, 2008. The Toronto Stock Exchange's main index tumbled 700 points on Friday afternoon, as commodity stocks slid along with underlying prices on deepening fears the world economy will go into recession. REUTERS/Mark Blinch</p>

When companies release their third-quarter results over the next few weeks, the accompanying earnings forecasts are likely to provide some pretty gloomy reading and may drive prices down further. Market focus will not be on the earnings themselves.

“(Forecasts) are what the market at the bigger level is looking at. Whether XYZ company beats or misses by a nickel is not the biggest focus over the next two or three weeks,” said Francis Campeau, broker at MF Global Canada.

And any market drops made on those forecasts could mark the bottom of the current fall, and the much-talked-of buying opportunity may finally be here.

It may even be close now. It certainly wasn’t a couple of weeks ago, during the general election campaign, when Canadian Prime Minister Stephen Harper said the big drop in markets represented a buying opportunity. The Toronto Stock Exchange’s key index promptly dropped another 1,000 points.

On Friday, however, bargain-hunting came in force and the benchmark index posted a weekly gain of 5.5 percent, finishing at 9,562.49.

“An investor should not necessarily wait for the economy to get better or earnings to bounce back before climbing on to the equity bandwagon,” said Clement Gignac, chief economist and strategist at National Bank Financial in a note on Friday.

Nevertheless, almost daily declines in the stock market in the past month have only reinforced the feeling that grim times are ahead and that recession looms.

So, and more importantly than in recent quarters when the economy was still growing, investors seeking bargains will look to management statements on confidence going forward when companies release their financial results.

Beaten-down commodities may provide a buying opportunity.

Oil prices are off more than 50 percent from the high above $147 a barrel they hit just three months ago, and the TSX’s energy group has fallen as well and this sector may be prime for picking.

“We are beginning to see really attractive valuations in some commodity stocks, some energy stocks. Those are not typically defensive sectors, it’s just that valuations have been smacked down so hard they really are attractive at these prices,” said Elvis Picardo, strategist at Global Securities.

“We would be looking for blue-chip names, for stocks that have exhibited leadership in the past.”

The big banks are not due to report earnings until late November or early December. Some attention will be squared on how some of their more exotic instruments are accounted for on the balance sheet.

In this regard, financials got some good news on Friday as the board that sets Canadian accounting rules said it will let companies reclassify some financial instruments to allow them to avoid fair-value accounting treatment.

The move should help ease concern of enormous writedowns by the Canadian banks, but Canadian Imperial Bank of Commerce, Canada’s fifth-largest bank by assets, will probably benefit most because it has taken billions of dollars of writedowns for subprime mortgage-related securities and other complex debt holdings in the past year.

With additional reporting by Jennifer Kwan; Editing by Peter Galloway

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