The S&P/TSX 60 Index gained 3.90% in the first half of 2023. The Canadian dollar version of the S&P 500 Index, the S&P/TSX Composite index, gained 13.20% in the first half of the year, 930 basis points higher.

The S&P/TSX 60 represents the large-cap segment of the Canadian equity market. Its components will have to improve their stock performance in the second half if the index hopes to catch the S&P 500. 

Unfortunately, unless oil prices take off and interest rates fall, a large segment of the Canadian equity market remains stuck in neutral. 

The S&P/TSX 60’s three top performers in the first half were Shopify (CA:SHOP), Open Text (CA:OTEX), and Cameco (CA:CCO). They were up 82.13%, 37.34%, and 35.19%, respectively. 

These three stocks will have to stay on a roll for the index to keep pace with America’s best-known index. Here are three others that should help move the needle in the year's second half.

Very Disappointing Bank Stock

Toronto-Dominion Bank (CA:TD) is the second-largest holding of the iShares S&P/TSX 60 (CA:XIU), which tracks the index's performance. In fact, financial stocks account for 34.01% of the exchange-traded fund’s holdings.

TD’s shares are down 6.34% through June 30 with a five-year annualized total return of 5.1%; that’s 711 basis points worse than the SPDR S&P 500 ETF Trust (US:SPY).

TD has been the most aggressive of the six large Canadian banks in buying banks south of the border. In May, that aggressiveness came back to haunt it as it was forced to call off its US$13.4 billion purchase of First Horizon (US:FHN) due to regulatory stumbling blocks. 

The failure to complete the acquisition has forced the bank to focus on internal growth within its existing business. 

“It’s a bit of a set back and First Horizon would have accelerated their presence in the southeast market, and organically it might take five to seven years to achieve what they would have achieved on day one,” The Globe and Mail reported Bank of America analyst Ebrahim Poonawala’s comments on May 31. “But that doesn’t mean that TD can’t return to bank M&A after they resolve whatever issue forced them to walk away.”

Any signs it will return to buying south of the border should boost its stock’s performance. 

Energy Drives Canadian Equities

Energy stocks are the second-largest weighting behind financials, at 16.69%. Cenovus (CA:CVE) is the fifth-largest energy holding in XIU ETF with a 1.32% weighting. Its shares are down 14.35% in 2023 with a five-year annualized total return of 11.47%, 74 basis points less than SPY.

On June 5, Cenovus announced it had 62,000 barrels of oil equivalent per day (BOE/d) of production at its Rainbow Lake operations in Alberta. It is expected to return to full production, 85,000 BOE/d, by mid-June. 

Given lower oil prices, the May and June shutdowns will likely have a less-adverse effect on its revenues and profits in the second quarter. For all of 2023, Cenovus expects total production of at least 790,000 BOE/d.

In the trailing 12 months, ended March 31, Cenevus’s free cash flow was $5.64 billion. Based on its $42.9 billion market cap, it has a free cash flow of 13.1%. 

Given its current free cash flow yield, Cenovus stock trades in value territory. 

Five-Year Money Pit

Saputo (CA:SAP) stock has been a trainwreck in recent years. Down 12.34% in 2023, it’s also got a five-year annualized total return of -5.31%, 17.5 percentage points worse than the SPY. 

The Quebec-based firm makes dairy products under many brands, including Saputo, Neilson, Heluva Good!, Dairyland, Cathedral City and Armstrong.  

Saputo reported better-than-expected Q4 2023 results that included a 12.4% increase in revenues, to $4.45 billion, with a 47-cent profit, 80.8% higher than Q4 2022, and five cents higher than the analyst estimate.

However, CEO Lino Saputo said consumer sentiment had turned negative in the final quarter of the fiscal year, suggesting that dairy markets had become “somewhat uncertain.” Shares dropped by more than 11% on the news. 

Fund Sentiment has taken a similar position, with Saputo stock’s score on the Fintel fund ownership dashboard sitting at the very average 54.19.  

Considering all of the work Saputo has done and will continue to do in the future to maximize efficiencies at its worldwide operations, the long-term prognosis is good despite the near-term uncertainty. 

Institutions will buy in large quantities with any weakness in its share price. Retail investors should take advantage of the drop in its share price in 2023.