Despite a number of stronger-than-expected economic data during the past few months, Canada’s first-quarter gross domestic product (GDP) fell short of expectations, with seasonally adjusted quarter-over-quarter growth of 1.2 percent annualized. The economy grew at its slowest pace since the fourth quarter of 2012.

That performance was a substantial six-tenths of a percentage point below the consensus forecast and three-tenths of a point below the Bank of Canada’s (BoC) more cautious projection.

According to Statistics Canada (StatCan), final domestic demand was down 0.1 percent in the first quarter, as lower business gross fixed capital formation offset increased household final consumption expenditure.

Household final consumption expenditure rose 0.3 percent, which was the smallest gain in four quarters. Higher spending on non-durable goods, up 1.0 percent, more than offset lower spending on durable and semi-durable goods.

The Bank of Canada (BoC) is looking toward a rise in exports and business investment to lead the economy away from its dependence on debt-burdened consumers. But growth in both areas continues to prove elusive.

Exports fell 0.6 percent overall, with exports of goods down 0.8 percent, following a 1.0 percent increase in the prior quarter. The major contributors to this decline were motor vehicles and parts, down 7.4 percent, basic and industrial chemical, plastic and rubber products, which fell 6.2 percent, and forestry products and building and packaging materials, off by 3.7 percent.

However, exports of energy products rose 3.8 percent, the third consecutive quarterly increase. Exports of crude oil and crude bitumen increased by 6.0 percent, and natural gas, natural gas liquids and related products climbed 5.6 percent. Exports of aircraft and other transportation equipment and parts grew 5.2 percent.

Business gross fixed capital formation fell 0.9 percent, the third decrease in five quarters. Business investment in machinery and equipment fell 1.5 percent in the first quarter, with spending on computers and peripheral equipment down 4.1 percent, while spending on medium and heavy trucks, buses and other motor vehicles fell 3.5 percent.

Interestingly, the import of industrial machinery, equipment and parts actually rose 3.1 percent, while spending in this sub-category was up 0.9 percent, following five quarters of declines. Perhaps the country’s beleaguered manufacturing sector is finally showing signs of life.

Although we were hoping for a stronger GDP number, Canada’s economy still outperformed the US by a significant margin during the first quarter, as the economy of its neighbor to the south contracted by a seasonally adjusted 1.0 percent quarter over quarter.

Nevertheless, US economic growth is expected to accelerate in the quarters ahead, outpacing Canada starting in the second quarter. That’s actually a good thing, since Canada’s economic fortune hinges on a resurgent US, which absorbs roughly three-quarters of the country’s exports.

Additionally, Canada’s first-quarter numbers were buoyed by stronger prices for resources, particularly for oil and gas, which were further enhanced by the country’s declining exchange rate. Indeed, CIBC World Markets notes that export prices rose at an annualized rate of nearly 23 percent.

And Canadian firms generated CAD88.6 billion in operating profits during the first quarter, up 7.4 percent sequentially and the biggest gain in three years. While economists note that these numbers can be quite volatile on a quarter-over-quarter basis, operating profits are now up 12.3 percent from a year ago.

The increase in corporate profits could compel cautious firms to finally start investing in growth again, especially if US demand for the country’s exports strengthens in the quarters ahead.

After all, business sentiment has been improving in recent quarters. As we wrote in a past edition of Maple Leaf Memo, the BoC’s most recent quarterly Business Outlook Survey showed that over the next 12 months, 46 percent of the firms surveyed, up 4 percentage points from the prior quarter, expect to spend more on machinery and equipment than they did during the prior period.

Full-Time vs. Part-Time

Hiring largely rebounded in May following April’s dismal employment numbers. StatCan reported that Canada’s economy added 25,800 jobs last month, slightly surpassing the consensus forecast of 25,000.

Beneath the headline number, however, the gain was driven entirely by a rise in part-time jobs, up 54,900, while full-time positions dropped by 29,100. Part-time jobs are generally considered to be of lesser quality due to lower pay and higher turnover.

In fact, May was the second consecutive month in which full-time jobs dropped by a significant amount, following April’s decline of 30,100 positions.

The unemployment rate ticked up by a tenth of a point, to 7.0 percent, though economists had expected it to remain unchanged from the prior month. Meanwhile, the labor force participation rate declined by a tenth of a point, to 66.1 percent, the lowest level since late 2001.

Over the trailing-year, employment growth has been minimal, up just 0.5 percent, largely due to growth in part-time labor. Meanwhile, StatCan says the number of hours worked over this period, a figure which normally presages future labor demand, has barely budged.

One bit of good news at least is that all of the employment growth over the past year has occurred in the private sector, where jobs rose 1.1 percent.

From an investment standpoint, it can be helpful to know which industries are actually experiencing job growth. On that basis, the utilities and transportation and warehousing sectors were the two areas that showed meaningful year-over-year job growth of 16.6 percent and 5.5 percent, respectively.

There’s no getting around these disappointing numbers both on the jobs front and the economy as a whole. But we expect things to improve in the coming months.

And even though the economy’s performance has been lackluster, that hasn’t stopped the S&P/TSX Composite Index from climbing 10.3 percent in local currency terms on a year-to-date basis. That just goes to show that markets and economies don’t always march in tandem.

Bay Street Beat

There were a few stragglers that reported earnings since the last issue, though now we’re basically in the quiet period between earnings seasons.

Bird Construction Inc’s (TSX: BDT, OTC: BIRDF) first-quarter numbers missed analyst estimates for earnings per share (EPS) by 81.5 percent, the fifth consecutive quarter in which the company has disappointed on profits. And Bird also fell short on revenue projections by 11.4 percent, the first time in four quarters it’s failed to exceed expectations for its top line.

Nevertheless, the company’s mix of analyst sentiment actually improved and is now slightly more bullish than it was previously, at five “buys,” one “hold,” and one “sell.”

TD Securities upgraded the stock to “buy” from “hold,” while also increasing its 12-month target price to CAD15.50 from CAD14.50.

The consensus 12-month target price now stands at CAD15.46, suggesting potential appreciation of 12.0 percent above the current share price.

Canadian Apartment Properties REIT’s (TSX: CAR-U, OTC: CDPYF) first-quarter adjusted funds from operations (FFO), the relevant measure of this real estate investment trust’s (REIT) profits, came in at CAD0.36, topping analyst estimates of CAD0.35.

In response, CIBC World Markets raised its rating to “sector outperform,” equivalent to a “buy,” from “sector perform,” or “hold.” It also boosted its 12-month target price to CAD24.50 from CAD23.50.

And BMO Capital Markets upped its rating to “outperform,” or “buy,” from “market perform,” or “hold.” However, its 12-month target price remained unchanged at CAD24.50.

Finally, EVA Dimensions lowered its rating to “overweight”  from “buy,” though from a sentiment standpoint both ratings are treated as equivalent.

Consequently, the company’s mix of analyst sentiment has improved and is now more strongly bullish than it was previously, at nine “buys” and two “holds.”

The consensus 12-month target price presently stands at CAD24.44, suggesting potential appreciation of 6.9 percent above the current unit price.

EnerCare Inc’s (TSX: ECI, OTC: CSUWF) first-quarter revenue of CAD82 million beat analyst estimates, while adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) of CAD42.6 million were essentially in line with the consensus of CAD43.2 million.

The company’s mix of analyst sentiment remained unchanged at four “buys” and three “holds.”

The consensus 12-month target price improved to CAD12.44 from CAD11.88 a month ago. The new target price suggests potential appreciation of 4.1 percent above the current share price.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF) posted a first-quarter loss of CAD0.30 per share, compared with an estimated loss of CAD0.06 per share. Revenue came in at CAD37.6 million versus analyst estimates of CAD43.7 million.

In response, EVA Dimensions lowered its rating to “sell” from “underweight,” though both ratings are considered equivalent from a sentiment standpoint.

And Canaccord Genuity Corp cut its rating to “hold” from “buy,” before subsequently suspending coverage of the security.

The company’s mix of analyst sentiment is essentially neutral, at one “buy,” six “holds,” and one “sell.”

The consensus 12-month target price now stands at CAD10.84, suggesting potential appreciation of 6.8 percent above the current share price.

RioCan REIT’s (TSX: REI-U, OTC: RIOCF) first-quarter operating FFO, the relevant measure of this REIT’s profits, came in at CAD0.42, which was in line with analyst estimates.

In response, Accountability Research Corp raised its rating to “buy” from “hold,” while boosting its 12-month target price to CAD31.00 from CAD26.50.

The company’s mix of analyst sentiment now tilts slightly bullish, at five “buys” and four “holds.”

The consensus 12-month target price now stands at CAD29.60, suggesting potential appreciation of 6.2 percent above the current unit price.

Ag Growth International Inc’s (TSX: AFN, OTC: AGGZF) earnings beat analyst forecasts by 45.3 percent for earnings per share (EPS) and by 12.6 percent for revenue. This was the third consecutive quarter in which the firm has surpassed sales expectations, though its recent history on the EPS front has been jagged.

On Bay Street, analyst sentiment remains largely bullish, at seven “buys” and four “holds.” The consensus 12-month target price is CAD51.28, which suggests potential appreciation of 12.5 percent above the current share price.

Peyto Exploration & Development Corp’s (TSX: PEY, OTC: PEYUF) first-quarter cash flow per share came in at CAD1.06, exceeding the consensus forecast of CAD1.04.

Nevertheless, GMP lowered its rating to “hold” from “buy,” though it maintained its 12-month target price at CAD42.00.

And EVA Dimensions upped its rating to “hold” from “underweight,” or “sell.”

The company’s mix of analyst sentiment is bullish with a neutral tilt, at 13 “buys,” seven “holds,” and one “sell.”

The consensus 12-month target price now stands at CAD45.11, suggesting potential appreciation of 13.1 percent above 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 (CAD50.63)
• Artis REIT (TSX: AX-U, OTC: ARESF)–6–2–1 (CAD17.21)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)–11–8–1 (CAD72.00)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–5–1–1 (CAD15.46)
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–0–1–0 (CAD15.00)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP)–1–3–2 (CAD33.53)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–9–2–0 (CAD24.44)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–7–4–2 (CAD43.14)
• DH Corp (TSX: DH, OTC: DHIFF)–3–5–1 (CAD33.43)
• Dream Office REIT (formerly Dundee REIT) (TSX: D-U, OTC: DRETF)–4–4–0 (CAD32.64)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–4–3–0 (CAD12.44)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–1–6–1 (CAD10.84)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–5–7–0 (CAD77.90)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–4–5–0 (CAD30.88)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–7–5–0 (CAD47.75)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–5–4–0 (CAD29.60)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–2–12–5 (CAD26.03)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–2–3–1 (CAD7.47)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–8–5–0 (CAD26.96)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–1–1–1 (CAD13.83)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–7–4–0 (CAD51.28)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–10–10–1 (CAD34.54)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–1–2–1 (CAD22.00)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–23–1–1 (CAD50.33)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–16–3–0 (CAD26.65)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–0–3–2 (CAD7.44)
• Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF)–2–14–2 (CAD7.34)
• Magna International Inc (TSX: MG, NYSE: MGA)–12–9–1 (CAD124.17)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–5–4–1 (CAD22.22)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–1–0–0 (CAD7.00)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–6–3–0 (CAD21.91)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–13–7–1 (CAD45.11)
• ShawCor Ltd (TSX: SCL, OTC: SAWLF)–4–2–0 (CAD62.80)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–13–7–1 (CAD78.46)
• Wajax Corp (TSX: WJX, OTC: WJXFF)–4–6–0 (CAD36.64)