2024 Diversified Industries Outlook

Expecting a Soft Landing in 2024.
As we enter 2024, we find many Companies in our diversified universe reporting record demand and very positive outlooks for earnings growth, with those companies with more direct consumer exposure addressing concerns around spending in an economically uncertain period. While there has been much discussion around a soft landing, and we remain in the camp that this is an achievable outcome, there will be different drivers for each sector and Company. For 2023 through December 20, the S&P/TSX Composite Index is up 6.0%, with the industrials subindex up 7.1%, while the real estate subindex is up 0.8%.

Significant Opportunities Despite Headwinds
We see several opportunities in 2024 for investors across our coverage universe, with many names in deep value territory, while others are ready to continue to extend their leadership in their respective subsectors. Our universe covers a wide breadth of the Canadian landscape. While companies will all feel the impact of broader economic trends, including what could be some economic bottoming and the effect of interest rate expectations on share prices, we believe Company and subsector-specific factors and positioning will be necessary for investors. In short, we see picking stocks on a fundamental basis, reflecting their ability to provide capital-efficient growth in cash flows and earnings to remain significant in 2024.

Demographics, Interest Rates, and Valuation Are Important Themes 
Underlying our view around individual securities heading into 2024 are our thoughts on the macro environment, with interest rates, unemployment, and real GDP growth. We expect a combination of more dovish monetary policy and evolving demographic trends (i.e., well-capitalized baby boomers entering retirement at scale) to underpin strong demand for our consumer-centric names, specifically Air Canada and AutoCanada, which currently trade at trough-level multiples.

We believe the disruption in the new/used vehicle market contributed significantly to the recent inflationary pressure, with normalizing vehicle supply conditions and overall levels of industrial production providing a more constructive backdrop for several names within our coverage universe as we head into 2024. Despite equity markets closing out 2023 at or near all-time highs, year-to-date performance and valuations across our coverage remain mixed. Our top ideas for 2024 largely consist of a mix of names that we see possessing strong, and in some cases underappreciated, growth prospects and are positioned to re-rate closer to peers or historical levels over the near term.

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