The Canadian economy continues to produce mixed signals, but recent data show evidence of modest growth, even if the anticipated shift toward export activity remains elusive.

The country’s gross domestic product (GDP) grew 0.2 percent month over month in November, which was in line with the consensus forecast. Although the pace of growth declined by a tenth of a percentage point from the two preceding months, November was the fifth consecutive month in which the economy expanded.

On a year-over-year basis, the economy grew by 2.6 percent. That’s significant because the Bank of Canada (BoC) had previously said that 2.5 percent annual growth is the minimum threshold necessary to remove excess capacity from the economy. November was the third consecutive month in which GDP grew by 2.5 percent or more.

Export-oriented goods-producing industries, particularly mining and energy producers, drove the latest numbers, with output for the broad category up 0.4 percent. Oil and natural gas production rose 2.6 percent, while mining was up 1.3 percent, thanks to potash and coal. However, a decline in drilling activity caused support services for the energy sector to fall by 2.4 percent.

Overall, the energy sector grew 2 percent sequentially and 4.4 percent year over year, with the annualized value of total output for the month at CAD157.8 billion.

While many of our recommendations are focused on goods-producing industries, the more domestic-oriented service sector actually accounts for a majority of GDP, at nearly 69 percent of total output. It grew 0.2 percent sequentially and 2.7 percent year over year.

The economy remains largely dependent upon overleveraged consumers. Given the country’s high-flying housing market, the primary driver in the service economy continues to be real estate, which climbed 0.3 percent month over month and 3.2 percent year over year, to CAD202.5 billion annualized.

Retail trade was the other bright spot in the service sector, up 0.8 percent sequentially and 4.4 percent year over year, to CAD88.6 billion annualized. In particular, consumers spent on automobiles, electronics and clothing.

Although economists with CIBC World Markets expect harsh winter weather likely caused a 0.2 percent decline in GDP during December, the relatively strong showing in the preceding months prompted them to boost their forecast for fourth-quarter growth to 2.9 percent from 2.7 percent. However, it’s important to note that their forecast is a bit of an outlier from the consensus of 2.4 percent growth, based on data aggregated by Bloomberg.

A Partial Reversal

After December’s dismal jobs numbers, Statistics Canada’s (StatCan) latest survey of the labor force was welcome news indeed. The economy added 29,400 jobs in January, blowing past economists’ expectation of 20,000 jobs. Revisions to the December figure also showed that the decline in employment was slightly less that month than originally reported, with a loss of 44,000 jobs instead of 45,900.

The latest result was good enough to lower the unemployment rate by two-tenths of a percentage point, to 7.0 percent. However, part of this decline was due to a drop in the labor force participation rate, which fell a tenth of a point, to 66.3 percent.

Nevertheless, the underlying data had some strong components, with employment gains derived entirely from growth in full-time jobs, which increased by 50,500 positions versus the prior month’s revised loss of 56,000.

However, much of the gain was driven by the addition of 28,300 to the ranks of the self-employed, a job category that’s generally considered to be of lower quality. Meanwhile, part-time employment fell by 21,100 versus December’s revised gain of 12,100 positions.

These results weren’t quite enough to offset December’s losses. And the average of 12,200 new jobs created per month over the trailing year fell short of the trailing five-year period’s 14,800 new jobs per month. But after the previous month’s disappointment, we’ll take it.

Elusive Exports

Finally, as we noted at the beginning of the article, the economy’s much-anticipated rotation toward export activity has yet to gain traction. StatCan reported that the country’s trade deficit widened in December, to CAD1.7 billion from the prior month’s revised deficit of CAD1.5 billion. The consensus forecast was for the deficit to narrow to CAD650 million.

Part of this result is due to a decline in the exchange rate. The Canadian dollar dropped below parity with the US dollar last year and now trades near USD0.91, down more than 14 percent from its cycle high.

Although the volume of imports declined 0.4 percent, that was more than offset by a rise in prices of 1.6 percent, with the total value of imports climbing to CAD41.4 billion. Export volumes increased by 0.8 percent, but prices only rose by 0.1 percent, so the total value of exports grew to CAD39.7 billion.

However, the picture brightens somewhat when focusing just on trade between the US and Canada. Exports rose 1.2 percent, to CAD30 billion, while imports fell by 0.4 percent, to CAD27.1 billion. That helped Canada’s trade surplus with the US widen to CAD2.9 billion from CAD2.4 billion.

Even so, Canada’s overall trade deficit was the widest it’s been in more than a year. It will clearly take a number of months before the lower exchange rate finally boosts export activity.

Until Canada can diversify its exports to other markets, such as emerging Asia, a big part of Canada’s economic story will continue to be whether the US economy rebounds strongly enough to boost the fortunes of its neighbor to the north.

We’re still waiting for the vast majority of our Portfolio companies to report their calendar fourth-quarter earnings. However, there were still a few noteworthy changes to analyst sentiment and price targets over the past month.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) doesn’t report earnings until early March, but in the meantime, the consensus 12-month target price rose to CAD67.91 from CAD63.80. That was an improvement of 6.4 percent and suggests a potential return of 10.1 percent, based on the current share price.

Davis + Henderson Corp (TSX: DH, OTC: DHIFF) was downgraded by Scotia Capital to “sector perform,” or “hold,” from “sector outperform,” or “buy.” Its 12-month target price remained unchanged, at CAD29.00. Meanwhile, Raymond James initiated coverage of the stock with a rating of “outperform,” or “buy,” and a 12-month target price of CAD32.00.

The mix of analyst sentiment now stands at three “buys,” five “holds,” and one “sell.” The consensus 12-month target price is CAD30.43, up from CAD29.64, and suggests a potential gain of 4.1 percent, based on the current share price.

National Bank Financial initiated coverage of Dundee REIT (TSX: D-U, OTC: DRETF) with a rating of “outperform,” or “buy,” and a 12-month target price of CAD35.25.

The current mix of analyst sentiment now stands at five “buys” and two “holds.” The consensus 12-month target price is CAD34.10, up from CAD33.81, and suggests a potential return of 15.9 percent, based on the current unit price.

EVA Dimensions lowered its rating for Northern Property REIT (TSX: NPR-U, OTC: NPRUF) to “hold” from “overweight,” or “buy.” It did not offer a 12-month target price. The mix of analyst sentiment now stands at five “buys” and four “holds.”

Though it’s not clear from Bloomberg’s data which brokerages changed their ratings, it’s worth noting that analyst sentiment for Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) improved markedly over the past month. The mix of ratings went from eight “buys,” three “holds” and one “sell” to 10 “buys,” one “hold” and one “sell.”

The consensus 12-month target price improved to CAD40.00, from CAD37.27, suggesting a potential return of 2.6 percent, based on the current share price.

Shaw Communications Inc (TSX: SJR/B, NYSE: SJR) reported fiscal first-quarter 2014 earnings per share that fell short of analyst expectations by 0.2 percent, but exceeded forecasts for sales by 0.4 percent.

The mix of analyst sentiment now stands at four “buys,” 12 “holds” and three “sells.” The consensus 12-month target price remains unchanged, at CAD25.19.

ARC Resources Ltd (TSX: ARX, OTC: AETUF) reported fourth-quarter earnings that missed analyst expectations on earnings per share and revenue by 20.8 percent and 7.6 percent, respectively.

Nevertheless, the mix of analyst sentiment remained the same, at 12 “buys,” seven “holds” and one “sell.” The consensus 12-month target price improved to CAD31.88, from CAD31.43, suggesting a potential return of 6.2 percent, based on the current share price.

EVA Dimensions lowered its rating for Enerplus Corp (TSX: ERF, NYSE: ERF) to “underweight,” or “sell,” from “hold.” It did not offer a 12-month target price. The mix of analyst sentiment now stands at 14 “buys,” three “holds” and one “sell.”

Credit Suisse lowered its rating for Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF) to “underperform,” or “sell,” from “neutral,” or “hold.” It also reduced its 12-month target price to CAD5.00 from CAD6.00.

The current mix of analyst sentiment now stands at one “buy,” 16 “holds” and two “sells.” The consensus 12-month target price is CAD6.68, down from CAD6.81, and suggests a potential return of 9.5 percent, based on the current share price.

While the mix of analyst sentiment remained the same for Magna International Inc (TSX: MG, NYSE: MGA), at 11 “buys,” six “holds” and three “sells,” the consensus 12-month target price improved by 4.3 percent, to CAD102.00 from CAD97.75. That suggests a potential return of 7.9 percent, based on the current share price.

M Partners Inc lowered its rating for Wajax Corp (TSX: WJX, OTC: WJXFF) to “hold” from “buy,” but its 12-month target price remained unchanged, at CAD39.00.

Meanwhile, Scotia Capital initiated coverage of the stock with a rating of “sector perform,” or “hold,” and a 12-month target price of CAD40.00

The mix of analyst sentiment now stands at two “buys” and nine “holds.” The consensus 12-month target price improved to CAD37.38, from CAD36.72, which is essentially flat when compared to the current share price.

In the listing below, the number of analyst “buy,” “hold” and “sell” ratings for each company are shown, followed by the average 12-month target price among the analysts for which we have access to such data.

Month-over-month variances in the number of analysts listed below for each stock are often due to those securities being on a brokerage’s restricted list for a brief period. A restricted list is a compliance measure that’s typically used during the period when the investment banking side of an analyst’s firm is involved in advising the company.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–5–3–1 (CAD43.33)
• Artis REIT (TSX: AX-U, OTC: ARESF)–6–3–0 (CAD16.75)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)–8–8–1 (CAD67.91)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–3–4–0 (CAD13.17)
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–0–1–0 (CAD15.00)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP)–9–2–1 (CAD32.50)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–9–2–0 (CAD24.66)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–5–7–1 (CAD43.90)
• Davis + Henderson Corp (TSX: DH, OTC: DHIFF)–3–5–1 (CAD30.43)
• Dundee REIT (TSX: D-U, OTC: DRETF)–5–2–0 (CAD34.10)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–5–2–0 (CAD11.00)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–3–5–1 (CAD10.82)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–5–6–0 (CAD67.78)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–5–4–0 (CAD30.79)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–10–1–1 (CAD40.00)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–4–5–0 (CAD28.43)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–4–12–3 (CAD25.19)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–2–3–1 (CAD7.35)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–8–3–0 (CAD27.05)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–0–1–1 (CAD12.50)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–8–2–1 (CAD47.97)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–12–7–1 (CAD31.88)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–3–3–0 (CAD22.00)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–22–1–1 (CAD46.56)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–14–3–1 (CAD22.82)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–0–3–2 (CAD6.94)
• Lightstream Resources Ltd (TSX: LTS, OTC: PBKEF)–1–16–2 (CAD6.68)
• Magna International Inc (TSX: MG, NYSE: MGA)–11–6–3 (CAD102.00)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–8–2–1 (CAD19.19)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–1–0–0 (CAD7.00)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–6–3–0 (CAD20.06)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–3–3–0 (CAD47.60)
• ShawCor Ltd (TSX: SCL, OTC: SAWLF)–12–4–2 (CAD36.33)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–13–6–1 (CAD64.50)
• Wajax Corp (TSX: WJX, OTC: WJXFF)–2–9–0 (CAD37.38)