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

After a quiet and frustrating summer, the S&P/TSX Composite has made up some of its underperformance versus the S&P in the last couple of months and continues its march higher in the past couple of weeks. The recent increase has to come from the two largest groups as it almost always does: energy and financials. WTI has touched US$55, and although the group has moved somewhat higher, it lags the price movement itself. Energy has rebounded from very oversold levels and now awaits further direction. Gas stocks have pulled back given the very warm weather in North America.

Our banks have shown good third quarter numbers and the real estate bubble talk has calmed down. Dividend increases look like they will continue and also insurers will benefit from higher rates and have lagged the banks recently.

Markets are not cheap but alternatives are few. The multiples are in the high-teens based on next years’ earnings but that still means the market could move higher into 2018, as we have decent global growth and seasonal positive trends and earnings momentum.

TOP PICKS

MANULIFE FINANCIAL (MFC.TO)
Good exposure to higher rates in the U.S., good Asian life insurance growth and the recent underperformance relative to banks make this a good entry point, despite its excellent performance in the past year. Recent purchases are at $25.

SNC-LAVALIN (SNC.TO)
Lots of organic growth plus synergies from recent acquisitions combined with a low relative valuation gives us a 20 per cent plus return profile. Recent purchases at $56.

ALIMENTATION COUCHE-TARD (ATDb.TO)
The stock has moved sideways for several months despite good earnings performance. The long-term move to electric cars has spooked investors a little bit but the company has more acquistions it can do and is already thinking ahead to charging stations, etc. As growth reaccelerates in 2018/19, the stock should respond. Recent purchases were at $58.
 

PAST PICKS: OCTOBER 28, 2016

MANULIFE FINANCIAL (MFC.TO)
Like it for higher rate exposure and Asian growth.

• Then: $19.36
• Now: $26.57
• Return: 37.24%
• Total return: 41.87%

ALGONQUIN POWER & UTILITIES (AQN.TO)
Good combo of growth and yield.

• Then: $11.78
• Now: $13.24
• Return: 12.39%
• Total return: 17.94%

CN RAIL (CNR.TO)
Good North American economic general growth play.

• Then: $84.45
• Now: $102.23
• Return: 21.05%
• Total return: 23.05%

TOTAL RETURN AVERAGE: 27.62%