Ottawa’s ‘mega deduction’ tax write-off could boost these TSX stocks, analysts say

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Photo by Ben Nelms /BloombergHow David Rosenberg is reducing stock market risk, which sector’s shares could take a hit from rate hikes and more from The Week in Stocks.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountStock of the week: BlackBerry Ltd.BlackBerry Ltd. closed out the week among the top 10 gainers on the S&P/TSX composite index, rising 5.2 per cent. CIBC Capital Markets analyst Todd Coupland said in a note on Sept. 10 that he expects the company to report a “clean” quarter when it reports earnings on Sept. 24. Coupland is also calling for the company to upgrade its guidance on QNX software division and Secure Communications services division. Coupland has a price target on the shares of $17.96. Shares closed Friday at $11.16. “Expectations remain achievable, the catalyst pipeline is strengthening and continued execution should drive a QNX-led re-rating. We would own BB” into the release of earnings, Coupland said. BlackBerry has a 12-month price target of $14.00 based the calls of seven analysts, according to Bloomberg.Keeping scoreCanada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againWhy David Rosenberg is building a ‘cash buffer’It’s time to reduce stock market risk and build a “cash buffer,” said David Rosenberg, president of Rosenberg Research & Associates Inc., in a note on Sept. 14. “The macro and policy backdrop is becoming less supportive for risk assets,” Rosenberg said, citing several challenges including signals from the bond market that are flashing overinvestment in artificial intelligence. Tightening financial conditions and rising oil prices are also standing in the way of “real growth prospects.” Further, “U.S. fiscal supports are increasingly in the rear-view mirror,” and the Nov. 3 U.S. midterm election is likely to result in “fiscal gridlock,” he said. Given all this, Rosenberg said he is dropping gold miners via the VanEck Gold Miners ETF (GDX) — a source of volatility — but hanging onto gold. in the form of bullion. He is also exiting the Global X Uranium ETF (URA). “This year’s performance has been more volatile, while some of the return-generating trends that supported the theme last year have faded,” he said. Lastly, he is dropping the iShares MSCI India ETF because of geopolitical risks and rising interest rates. Rosenberg said he still likes Asia for investments but focused away from artificial intelligence and Japan. He still likes two-year and 10-year Treasuries. “Bonds have been beaten up badly via ever-rising risk premia and inflation uncertainty, but the yield cushion is appealing at this point, especially relative to the S&P 500 equity and dividend yields,” he said.Who could win from Ottawa’s expanded tax write-offThe federal government announced during the Canada Investment Summit this week that a tax write-off program — the productivity mega deduction (PMD) — would be extended to capital investments in oil and gas pipelines, mining property, fibre-optic cable, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges and roads. The program allows for the deduction of 100 per cent of the depreciation of capital assets in the first year of operation on a greater percentage of assets. Analysts at TD Cowen think the tax program can benefit several sectors and companies. “We believe the broad nature of the PMD should support commercial and wholesale loan growth among banks,” analysts led by Mario Mendonca said in the note on Sept. 15. In another TD Cowen note on Sept. 17, energy analysts said the PMD expansion could help push projects such as LNG Canada phase 2, Ksi Lisims LNG, TMX optimization and the West Coast oil pipeline across the finish line. The Immediate expensing component allowed by the tax write-off could boost the economics of gas-fired power projects for Capital Power Corp. (CPX:TSX) and TransAlta Corp. (TA:TSX), Brookfield Renewable Partners (BEP:NYSE) and Northland Power Inc. (NPI:TSX), TD analysts said. Other companies that could benefit from the new tax policy include Finning International Inc. (FTT:TSX) and Toromont Industries Ltd. (TIH:TSX) — both Caterpillar dealers in Canada — and Wajax Inc. (WJX:TSX), which distributes Hitachi equipment, though analyst noted much of the upside from the “build Canada” push is already baked into the shares.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Could Canadian bank shares take a hit from rate hikes?In the last seven cycles of interest rate hikes, the shares of Canada’s big banks have been losers, CIBC Capital Markets analysts led by Paul Holden, said in a note on Sept. 16, citing an average decline of 23 per cent. The U.S. Federal Reserve hiked the interest rate 25 basis points on Wednesday with one more increase expected this year. Looking at the Bank of Canada, markets are calling for two hikes this year and several more in 2027. “We have not fully embraced the same view as the rate market in terms of the magnitude of further rate hikes and hence are not hitting a panic button for the banks,” Holden said in the note. However, the CIBC team is recommending cutting risk just to be “prudent.”Price target hikes and holdsTD Cowen analyst Vince Valentini hiked his price target for shares of BCE Inc. (BCE:TSX) to $40 from $37 after the telco announced it was expanding data centre capacity at its Saskatchewan campus. Shares closed Friday at $30.90.UBS Investment Bank analyst Michael Lasser reiterated his buy rating for Costco Wholesale Corp. (COST:Nasdaq) and his price target of US$1,275 on the company continuing “to outperform most of retail” despite concerns about slowing membership growth, increased price competition and decelerating comparable store sales. Shares closed Friday at US$895.331.TD Cowen analyst John Mould has a buy rating on Capital Power Corp. (CPX:TSX) and maintained his $80 price target after shares pulled back 22 per cent starting in July “offering an attractive entry point.” Shares closed Friday at $61.38.BMO Capital Markets analyst Tamy Chen maintained her price target of $215 for Dollarama Inc. (DOL:TSX) despite shares being caught up in a sell-off of high-value consumer stocks. “We do not see a reason for the stock weakness from company fundamentals,” she said. Shares closed Friday at $174.18.CIBC Capital Markets anlayst Robert Catellier hiked his price target for Enbridge Inc. (ENB:TSX) to $79 from $78 after it purchased Tallgrass Energy’s crude oil transportation business. Shares closed Friday at $68.14.Every week, the Financial Post breaks down the most interesting developments in the week’s world of investing, from top performers to surprising analyst calls and stocks to have on your radar.Are you an investor looking for stock ideas and market insight? 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