Andrew Pink's Top Picks: March 6, 2019

Andrew Pink, portfolio manager at LDIC Inc.
Focus: North American mid-caps and large-caps, preferred shares and fixed income

MARKET OUTLOOK

Following severe volatility in Q4, markets have traded in a considerably more orderly fashion year-to-date.  Broad economic fundamentals remain positive, particularly in the U.S. and markets are no longer overreacting to geopolitical headlines.  We see sustained low unemployment, contained inflation, improving consumer confidence trends and relatively strong GDP growth — again, more so in the U.S.  Combined with accommodative central banks and the potential near-term end of the China-U.S. trade war, we remain optimistic for North American markets through the balance of 2019.

While we continue to favour conditions in the U.S. and related investments, we deployed a defensive strategy late last year, trimming our U.S.-listed allocation by about 10 per cent to a range of 30 to 35 per cent.  We repatriated U.S. cyclical exposure (discretionary, regional banks, technology, industrials) back into high-quality, dividend-paying Canadian companies in more defensive sectors (REITs, telcos and utilities).  We continue to see compelling investment opportunities south of the border and hold a large number of Canadian-listed investments that are levered to the U.S. economy.

UPDATE: Trimmed Enerplus on Feb. 22 at $11.90. The position was reduced to add a pure-play Canadian oil producer.

TOP PICKS

PARKLAND FUEL (PKI.TO)
Recently purchased at $37.95.

Parkland Fuel has been firing on all cylinders and making strategic and accretive acquisitions, most recently acquiring a 75 per cent stake in Caribbean fuel distributor SOL for $1.6 billion. We expect Parkland will leverage their distribution assets and create an international platform for future growth in the Caribbean region.  It’s in a strong position after vertically integrating their business lines:  from refining assets, to fuel distribution to convenience stores.  It’s still early days for this roll-up strategy, which has a significant runway for growth.

BROOKFIELD INFRASTRUCTURE PARTNERS (BIP_u.TO)
Recently purchased at $51.84.

Brookfield Infrastructure provides leverage to the global coordinated infrastructure spending theme.  This investment combines the most sophisticated executive group in private equity, local expertise in underinvested markets around the world, government access and low cost capital.  We expect the company to continue to make large strategic acquisitions and to leverage their skills to consistently enhance shareholder value.   

WPT INDUSTRIAL REIT (WIR_u.TO)
Recently purchased at $13.

WPT is a pure play on the U.S. direct-to-consumer shopping theme.  Package distribution and fulfillment centre assets represent nearly two-thirds of WPT’s total net operating income and the entire nearly 2.2 million square feet portfolio is domiciled in the U.S.  The external asset management contract was recently internalized, cleaning up the structure for a possible private equity takeout.  A recent U$135 million financing has been completed and we expect details of a property acquisition to materialize within the coming weeks. 

PAST PICKS: OCT. 23, 2018

CHORUS AVIATION (CHR.TO)

• Then: $6.75
• Now: $7.40
• Return: 10%
• Total return: 13%

ENERPLUS (ERF.TO)

• Then: $13.08
• Now: $11.38
• Return: -13%
• Total return: -13%

PARKLAND FUEL (PKI.TO)

• Then: $43.85
• Now: $37.32
• Return: -15%
• Total return: -14%

Total return average: -5%