Bruce Campbell, president and portfolio manager at Campbell, Lee & Ross
FOCUS: Canadian large caps
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MARKET OUTLOOK

It is said that while bottoms are events, tops are processes. Translated, markets bottom out when panic sets in; therefore, they tend to be short and deep. By contrast, market tops usually form over several months and we may well be at the start of that process now. When the market melts up, standard metrics don't matter. Emotion and momentum rule the day in the short term and “value” is less important. I don’t think anyone would disagree that we are in the late stages of a bull market. The question is how long it can last from here.

Nevertheless, psychology is becoming a little frothy, but the U.S. tax cuts have provided earnings growth and momentum. Many expect a rise in capex/tech spending (e.g., broad consumer, internet, banks, materials, media) and a pickup in buybacks (e.g., tech, banks). Dividends could reset higher in certain sectors (tech, telecom) while those with higher leverage could also pay down debt (e.g., telecom, chemicals, machinery). Some caution is warranted but own quality and dividends and be prepared to be nimble as the year progresses, particularly if we rise another few months without interruption.

TOP PICKS

NEWELL BRANDS (NWL.N)
Newell is a diversified, consumer products global company that owns Rubbermaid, Rawlings Sporting Goods, Yankee Candle, Post-It Notes, etc. Having missed their Q3 earnings and back to school due to floods in the southern U.S. and squeezes on plastics margins, the stock has moved down to a very attractive level. The recent acquisition of Jardin is providing lots of synergies and the stock is now only 11x 2018 earnings. As they show recovery and normalcy the stock should bounce nicely.

ENBRIDGE (ENB.TO)
Enbridge is the cheapest it has been in a decade. Over five per cent yield and lots of earnings/dividend growth for the next five to seven years. The market is worried about the financing needed for this growth but they did an issue in the fall which has taken care of those concerns.

HSBC (HSBC.N)
HSBC is a global bank that trades in New York and Hong Kong primarily. The bank is 50 per cent Asia, 30 per cent Europe, 13 per cent U.K. and the balance in North America. The growth will largely come from Hong Kong/Asian re-insurance, where AIA has done very well and HSBC is playing catch-up, but has a long ramp ahead of them. Valuation is still at a discount to other large, global banks, as HSBC did have major problems back in the financial crisis. Balance sheet going forward is now solid again to sustain its growth.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
NWL Y Y Y
ENB Y Y Y
HSBC Y Y Y

PAST PICKS: JANUARY 3, 2017

TD BANK (TD.TO)
Our favourite bank for its U.S. exposure and retail focus.

  • Then: $66.91
  • Now: $74.76
  • Return: 11.73%
  • Total return: 16.62%

ALIMENTATION COUCHE-TARD (ATDb.TO)
Synergies and further acquisitions should move the stock above $70.

  • Then: $60.75
  • Now: $66.14
  • Return: 8.87%
  • Total return: 9.51%

ADVANTAGE OIL & GAS (AAV.TO)
The best lowest cost natural gas producer. A victim of lower prices but will be a survivor.

  • Then: $8.74
  • Now: $4.32
  • Return: -50.57%
  • Total return: -50.57%

TOTAL RETURN AVERAGE: -8.14%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TD Y Y Y
ATDb Y Y Y
AAV Y N Y

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