The Bank of Canada’s (BoC) latest quarterly Monetary Policy Report includes a couple of intriguing forecasts for Canada’s economic growth.

Although the central bank’s estimate for second-quarter gross domestic product (GDP) was revised lower to a 1 percent annualized growth rate, down eight-tenths of a percentage point from its prior forecast, third-quarter GDP is now projected to come in at a 3.8 percent annualized rate, a 1.5 percentage point improvement from the previous estimate.

Second-quarter GDP is expected to suffer erosion due to one-time events, such as historic flooding in Alberta as well as a province-wide strike in Quebec. As the trickle of monthly data shows, the second quarter definitely suffered a slowdown. Though the economy grew for the fifth consecutive month in May, sequential GDP growth of 0.2 percent fell short of the consensus forecast of 0.3 percent. That follows April’s decidedly sluggish growth of 0.1 percent. 

As such, a sharp rebound in the economy during the third quarter will largely be due to the deferral of economic activity from the second quarter, along with rebuilding activity in the wake of Alberta’s floods.

However, economists at CIBC World Markets believe that the BoC is playing it too conservative with its second-quarter forecast. Their estimate is for a more modest deceleration to 1.6 percent, though “modest” here is relative after the economy’s stronger-than-expected surge of 2.5 percent growth during the first quarter. And that mean’s CIBC’s third-quarter projection is for a more moderate rise in GDP of 1.8 percent.

The BoC also raised its full-year forecast for GDP growth to 1.8 percent, up three-tenths of a percentage point from the prior quarter’s forecast. So this year is a period during which Canada’s economy will essentially regroup in anticipation of higher growth in the years ahead. To that end, the economy is expected to grow by 2.7 percent per year in 2014 and 2015, largely in tandem with a rebound in the US economy.

The US posted second-quarter GDP growth of 1.7 percent annualized, beating the consensus estimate of 1 percent. Meanwhile, the BoC forecasts the US economy will grow 1.7 percent for full-year 2013, and then jump by 3.1 percent and 3.2 percent in 2014 and 2015, respectively.  

The US is Canada’s largest trading partner, and the central bank believes stronger growth in the US will help Canada’s exports gather momentum, which will then spur growth in business investment. The Canadian economy should be strong enough to absorb its excess capacity, otherwise known as the output gap, by mid-2015. And in the interim, the economic slack will keep inflation subdued, allowing the BoC to maintain an accommodative monetary policy until a fuller resurgence in the economy.

In the short term, however, Canada’s economy remains challenged. The July Labor Force Survey from Statistics Canada (StatCan) showed that employment fell by 39,000 last month, pushing the unemployment rate higher by a tenth of a percentage point, to 7.2 percent. That result fell seriously short of the consensus forecast, as economists had expected the economy to add 10,000 jobs. And now the six-month average gain in employment has been dragged lower to 11,000 jobs per month versus 27,000 jobs per month during the preceding period.

In the energy sector, some investors had hoped that triple-digit prices for North American crude, along with the sudden narrowing of the spread between North American benchmark West Texas Intermediate (WTI) crude and the global benchmark Brent crude, would bode well for Canadian oil producers. Thanks to prolific output from US shale production and a lack of sufficient takeaway capacity, the two crude benchmarks have traded at a wide divergence since early 2011, with WTI priced at a substantial double-digit discount to Brent during much of the past two years.

But as infrastructure finally started to catch up with supply, the spread began slowly narrowing in March, and now WTI and Brent trade within a few dollars of one another. Unfortunately, as CIBC economists have noted, the futures curve shows steep backwardation for North American crude, which means traders expect future prices will be well below spot prices. Indeed, the price for WTI is expected to slump to $85 per barrel by mid-2016. Given this outlook, Canadian energy producers could defer spending on major capital projects until prices firm.

Finally, Canada’s housing market continues to produce data that suggest the formation of a top. On the one hand, in July, home sales in Toronto and Vancouver, Canada’s two largest real estate markets, jumped 16 percent and 40 percent, respectively, and the country’s average home price rose to almost CAD387,000.

However, the value of building permits issued in June fell 10.3 percent from the prior month, to CAD6.6 billion, the first such decline in six months. To be sure, the strike by Quebec’s construction workers that month appeared to weigh heavily on this result. The province’s building permits fell 31.1 percent, which lowered its share of Canada’s overall dollar value of permits from 20.3 percent in May to 15.6 percent in June.

For the country as a whole, residential permits fell 12.9 percent, due in large part to builders backing off from an overheated condo market. Permits for multi-family dwellings, or apartments, fell 18.8 percent, while single-family homes dropped 7.4 percent.

In the non-residential sector, industrial permits plunged 21.5 percent, to CAD493 million, though that came after May’s gain of 40 percent.

Despite these figures, the total value of Canada’s building permits remains in an upward trend.

As for Canada’s broader economy, it’s a waiting game until the US shakes off its malaise, which could happen as soon as next year.

Bay Street Beat

After a slow period last month, earnings season is finally underway in earnest.

AltaGas Ltd (TSX: ALA, OTC: ATGFF) beat analyst estimates by 45.6 percent on second-quarter earnings per share, but lagged forecasts on sales by an equally substantial 29.7 percent. As a result, EVA Dimensions lowered its rating to a “sell” from its prior rating of “underweight.” Among the nine analysts for which we have data, the ratings mix now stands at five “buys,” three “holds,” and one “sell.”

The 12-month consensus target price has improved to CAD40.50 from CAD39.88 last month, which suggest a return potential of 9.2 percent above the current share price.

Artis REIT (TSX: AX-U, OTC: ARESF) narrowly beat analyst estimates by 0.3 percent on second-quarter funds from operations, the relevant measure of a real estate investment trust’s (REIT) profits. Analyst sentiment remained static from the prior month, though Desjardins Securities initiated coverage of the REIT with a “buy” rating.

The overall ratings mix now stands at seven “buys” and three “holds.” The 12-month consensus target price has dropped slightly to CAD17.61 from CAD17.84, though the newer price target still suggest a return potential of 20.7 percent above the current share price.

Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF) beat analyst estimates on second-quarter sales by 3.9 percent. Cannacord Genuity Corp upgraded its rating to a “buy” from a “hold.” And two other brokerages initiated coverage, with Jacob Securities Inc assigning a “hold” rating, while EVA Dimensions assigned an “underweight” rating, which we treat as equivalent to a “sell.”

The overall ratings mix now stands at nine “buys,” three “holds,” and one “sell.” The 12-month consensus target price has dropped slightly to CAD32.39 from CAD32.90, though that newer price target still represents a return potential of 17.6 percent above the current unit price.

Canadian Apartment Properties REIT’s (TSX: CAR-U, OTC: CDPYF) second-quarter results beat analyst expectations by 7.7 percent on funds from operations (FFO) and 0.6 percent on revenue.

The overall ratings mix remains largely the same as last month, with nine “buys,” three “holds,” and no “sells.” The 12-month consensus target price has dropped to CAD25.54 from CAD26.45, though the new price target still suggests a return potential of 17.1 percent above the current unit price.

Cineplex Inc’s (TSX: CGX, OTC: CPXGF) numbers beat analyst estimates for the second quarter by 2.7 percent on earnings per share and 3.7 percent on revenue. Nevertheless, the overall ratings mix remains largely the same as last month, with four “buys,” five “holds,” and one “sell.”

However, the consensus 12-month target price improved considerably, to CAD40.28 from CAD36.56, though that only suggests a return potential of 2.6 percent. Interestingly, the brokerages that boosted their target prices the most include two that have essentially rated the stock as a “hold”: CIBC World Markets raised its target to CAD42 from CAD36, despite its “sector perform” rating, and Credit Suisse raised its target to CAD37 from CAD32, despite its “neutral” rating.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF) beat analyst estimates on earnings per share by 19.6 percent, the first upside surprise on this front in three quarters. It also exceeded forecasts by 10.1 percent on sales, after narrowly beating estimates the prior two quarters.

The stock is on the restricted list at four brokerages, so the remaining ratings mix and price target data to which we have access have a data cut-off that actually precedes last month’s issue. As such, we’ve left the data in the listing below unchanged from last month. For more information about restricted lists, please see our note above the listing at the end of this article.

Dundee REIT (TSX: D-U, OTC: DRETF) beat analyst estimates for funds from operations (FFO) by 0.3 percent. The ratings mix remains at five “buys,” one “hold” and no “sells.” The consensus 12-month price target fell slightly, to CAD37.88 from CAD38.53, though this still suggests a return potential of 25.4 percent above the current unit price.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF) blew past analyst estimates on earnings per share, doubling the forecasted amount. Its top-line growth was far less dramatic, however, narrowly exceeding forecasts by 0.4 percent.

While Jacob Securities upgraded the stock to a “buy” from a “hold,” the ratings mix otherwise remained the same at nine “buys,” two “holds,” and one “sell.” The consensus 12-month target price fell slightly to CAD10.82 from CAD11.06, though this still suggests a return potential of 21.3 percent.

Keyera Corp’s (TSX: KEY, OTC: KEYUF) second-quarter results blew past analyst estimates on both earnings per share and sales, beating forecasts by 36.9 percent and 42.9 percent, respectively.

EVA Dimensions upgraded its rating to a “hold” from “underweight,” or “sell.” The overall ratings mix stands at six “buys” and five “holds.” The consensus 12-month target price ticked down to CAD63.10 from CAD63.20, for a potential one-year return of 5.6 percent.

Although Northern Property REIT (TSX: NPR-U, OTC: NPRUF) doesn’t report earnings until next week, EVA Dimensions just upgraded its rating to “overweight,” which is equivalent to a “buy,” from a “hold.”

RioCan REIT’s (TSX: REI-U, OTC: RIOCF) second-quarter results narrowly lagged analyst forecasts by 0.3 percent on funds from operations (FFO) and also fell short by 3.2 percent on revenue. This was the first time in nine quarters that the REIT missed estimates for FFO.

Nevertheless, the ratings mix remains the same at five “buys,” five “holds,” and no “sells.” The consensus 12-month target price dropped to CAD28.33 from CAD29.56, for a potential one-year return of 16.4 percent.

TransForce Inc’s (TSX: TFI, OTC: TFIFF) second-quarter results beat analyst expectations on earnings per share by 8 percent, but missed on revenue by 1.4 percent.

TD Securities responded by lowering its rating to a “buy” from an “action list buy,” though both ratings are treated the same when it comes to overall sentiment. The mix of ratings stands at eight “buys,” three “holds,” and no “sells.”

The consensus 12-month target price dropped slightly to CAD22.77 from CAD28.33, for a potential one-year return of 5 percent.

Acadian Timber Corp’s (TSX: ADN, OTC: ACAZF) second-quarter results beat analyst estimates by a substantial 48.7 percent on sales, for the first upside surprise on its top line in four quarters. Even so, it slightly lagged estimates on earnings per share. We only have access to data for two analysts, and both reaffirmed their prior ratings and target prices.

ARC Resources Ltd’s (TSX: ARX, OTC: AETUF) second-quarter results beat analyst forecasts by a wide margin on earnings per share, an upside surprise of 39.8 percent. But sales came out ahead by just 0.9 percent.

While National Bank Financial lowered its rating to “sector perform,” or “hold,” from “outperform,” or “buy,” EVA Dimensions raised its rating to “hold” from “sell.” The ratings mix now stands at seven “buys,” 11 “holds,” and no “sells.”

The consensus 12-month target price improved slightly to CAD29.45 from CAD29.24, for a one-year return potential of 17.1 percent.

Atlantic Power Corp’s (TSX: ATP, NYSE: AT) second-quarter results delivered an upside surprise on earnings per share by 91.4 percent and also beat estimates for revenue by 13 percent.

Still, analyst sentiment remains tepid at seven “holds” and two “sells.” EVA Dimensions raised its rating to “underweight” from “sell,” though we treat both ratings as equivalent when it comes to sentiment.

Nevertheless, the consensus 12-month target price dropped again, to CAD4.96 from CAD5.58, for a one-year potential return of 19 percent.

Chemtrade Logistics Income Fund’s (TSX: CHE-U, OTC: CGIFF) second-quarter results missed analyst estimates by 42.4 percent on earnings per share and by 2 percent on sales.

National Bank Financial lowered its rating to “sector perform,” or “hold,” from “outperform,” or “buy.” The overall ratings mix now stands at one “buy,” four “holds,” and one “sell.” The consensus 12-month target price now stands at CAD18.13, down slightly from CAD18.20, for a one-year potential return of 11 percent.

Crescent Point Energy Corp’s (TSX: CPG, OTC: CSCTF) second-quarter results missed analyst estimates by 51.4 percent on earnings per share. Even so, Stifel raised its rating to a “buy” from a “hold,” and the overall ratings mix now stands at 20 “buys,” one “hold,” and one “sell.”

The consensus 12-month target price now stands at CAD46.29, up slightly from CAD45.78, for a one-year potential return of 0.6 percent.

Enerplus Corp’s (TSX: ERF, NYSE: ERF) second-quarter results beat analyst expectations by 7.9 percent on earnings per share.

The overall ratings mix now stands at 10 “buys,” six “holds,” and one “sell.” The consensus 12-month target price improved to CAD18.36 from CAD17.97, for a one-year potential return of 31.4 percent.

Extendicare Inc (TSX: EXE, OTC: EXETF) fell short of analyst expectations on second-quarter earnings per share by 50 percent, though its top line narrowly beat estimates by 0.5 percent.

Euro Pacific Canada Inc initiated coverage with a “hold” rating. The overall ratings mix now stands at four “holds” and one “sell.” The consensus 12-month target price fell slightly, to CAD6.94 from CAD7.08, which is 0.6 percent below the current share price.

Lightstream Resources Ltd’s (TSX: LTS, OTC: PBKEF) second-quarter results showed losses exceeding forecasts by 150 percent, though sales missed estimates by 8.1 percent.

As a result, three analysts lowered their ratings: TD Securities dropped its rating to a “hold” from a “buy,” Dundee Securities Corp lowered its rating to “neutral” from a “buy,” and FirstEnergy Capital Corp downgraded its rating to “market perform” from “outperform.” The overall ratings mix now stands at four “buys,” 13 “holds,” and two “sells.”

The consensus 12-month price target dropped to CAD9.60 from CAD10.50, for a potential one-year return of 29.4 percent.

Newalta Corp’s (TSX: NAL, OTC: NWLTF) second-quarter results beat estimates for earnings per share by 26.4 percent and sales by 5.7 percent.

The mix of analyst ratings remains at nine “buys” and one “hold,” though the consensus 12-month target price improved to CAD17.96 from CAD17.11, for a potential one-year return of 17 percent.

Parkland Fuel Corp’s (TSX: PKI, OTC: PKIUF) second-quarter results beat analyst estimates by 19.2 percent on earnings per share and by 7.4 percent on revenue.

Nevertheless, both the ratings mix and 12-month consensus target price remain the same as last month.

Though Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF) isn’t scheduled to report earnings until later this month, earlier this week National Bank Financial lowered its rating to “sector perform,” which is equivalent to “hold,” from “outperform,” or “buy.” However, the brokerage’s 12-month target price remains at CAD31.

Vermilion Energy Inc’s (TSX: VET, OTC: VEMTF) second-quarter results surprised to the upside on earnings per share by 35.1 percent and by 7.5 percent on sales.

Even so, TD Securities downgraded the stock to a “hold” from a “buy,” and National Bank Financial lowered its rating to “sector perform” from “outperform.” The overall ratings mix now stands at 11 “buys,” five “holds,” and one “sell.” Still, the consensus 12-month target price improved to CAD61.03 from CAD56.66, for a one-year potential return of 7.2 percent.

Wajax Corp’s (TSX: WJX, OTC: WJXFF) second-quarter numbers beat analyst estimates by 6.2 percent on earnings per share and by 0.8 percent on revenue.

The overall ratings mix now stand at two “buys” and seven “holds.” The consensus 12-month target price improved to CAD34.13 from CAD33.67, though that’s 1.8 percent below 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 price target 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 (CAD40.50)
• Artis REIT (TSX: AX-U, OTC: ARESF)–7–3–0 (CAD17.84)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–2–5–1 (CAD13.08)
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–0–1–0 (CAD13.50)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF)–9–3–1 (CAD32.39)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–9–3–0 (CAD25.54)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–4–5–1 (CAD40.28)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–3–5–0 (CAD24.07)
• Dundee REIT (TSX: D-U, OTC: DRETF)–5–1–0 (CAD37.88)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–4–2–0 (CAD10.88)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–9–2–1 (CAD10.82)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–6–5–0 (CAD63.10)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–5–4–1 (CAD32.56)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–7–4–1 (CAD35.50)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–5–5–0 (CAD28.33)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–6–8–4 (CAD25.21)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–2–3–1 (CAD7.19)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–8–3–0 (CAD22.77)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–0–1–1 (CAD12.50)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–4–6–1 (CAD36.89)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–7–11–0 (CAD29.45)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–0–7–2 (CAD4.96)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–1–4–1 (CAD18.13)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–20–1–1 (CAD46.29)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–10–6–1 (CAD18.36)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–0–4–1 (CAD6.94)
• Lightstream Resources Ltd (TSX: LTS, OTC: PBKEF)–4–13–2 (CAD9.60)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–9–1–0 (CAD17.96)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–1–0–0 (CAD8.00)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–6–3–0 (CAD19.28)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–11–5–2 (CAD33.84)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–11–5–1 (CAD61.03)
• Wajax Corp (TSX: WJX, OTC: WJXFF)–2–7–0 (CAD34.13)