Bruce Campbell's Top Picks: May 28, 2019

Bruce Campbell, chairman of Campbell, Lee & Ross
Focus: Canadian large caps

MARKET OUTLOOK

After a solid recovery in the first four months of the year, markets have pulled back some this month as trade tensions and economic numbers in the American economy are decidedly mixed. Durable goods and housing are particularly soft.

It continues to appear that rates will remain flattish for the balance of the year. Yield and defensiveness should now play a part in portfolios going forward. We think there are pockets of value around in Canada and the U.S. markets in specific sectors.

Financials, healthcare and certain industrial sectors still provide good values.

TOP PICKS

BANK OF NOVA SCOTIA (BNS.TO)

The most international of the Canadian banks, Scotiabank now trades at nine-times earnings and a 5 per cent dividend yield. They are almost a perfect split of 50 per cent Canadian banking and 50 per cent international banking. While we agree there may be some Canadian consumer softness in the near term, much of that is now already being priced into the stock and it has underperformed the group for the last few quarters.

NUTRIEN (NTR.TO)

The combination of Agrium and Potash has created a global powerhouse in the crop nutrient space. Nutrien is the third-largest natural resource company in Canada. It’s currently trading a around 13-times next year’s earnings and we expect them to generate 2.5 billion in free cash flow. This offers a lot of room to up the 3.6-per-cent dividend yield (only a 40 per cent payout ratio) or lower the already low debt levels. The stock has been soft due to weather-related concerns about the upcoming quarter, but this is priced in and temporary, so there’s a good entry point.

SUNCOR (SU.TO)

Suncor is the safest way to play Canadian energy. You are shielded by the refining and marketing side of the business, the lowest cost on the oil sands side and lots of upcoming growth. The company generated more than $500 million of free-cash-flow last quarter. The yield is now 4 per cent.

Suncor trades at less than six times cash flow. It’s normally 7.5 times, so you are buying in cheap and get paid to wait for a better tone to the energy markets.

PAST PICKS: MAY 25, 2018

TD BANK (TD.TO)

• Then: $76.46
• Now: $76.25
• Return: -1%
• Total Return: +4%

PARAMOUNT RESOURCES (POU.TO)

• Then: $14.91
• Now: $7.85
• Return: -47%
• Total Return: -47%

MANULIFE FINANCIAL (MFC.TO)

• Then: $24.93
• Now: $23.22
• Return: -7%
• Total Return: -3%

Total return average: -15%