Bryden Teich, portfolio manager at Avenue Investment Management
Focus: North American equities

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MARKET OUTLOOK

I think certain sectors of the Canadian stock market represent very strong value for long-term investors at today’s levels. Economic growth continues to expand moderately in both Canada and the U.S., and consumer inflation remains muted. Short-term interest rates look poised to move higher as the U.S. Fed continues to normalize interest rates. Long-term inflation expectations however remain anchored, so I expect that a further gradual flattening of the yield curve should be expected. This signals that we’re pushing into the later stages of this economic expansion. Over the next six to 12 months, there’s a cyclical tailwind behind the earnings of major sectors of the TSX Index (financials, energy) and this will provide a strong boost to corporate profits. On this estimation, I believe the TSX should perform strongly over the next year.

TOP PICKS

ENBRIDGE (ENB.TO)

Enbridge reported very strong first-quarter financial results. The company has come under pressure recently because of concerns over regulatory risk around their Line 3 replacement, as well as concerns over funding their capital program. We think the most recent quarter shows the strength of the company, along with their recent asset sales progressing better than expected. It pays a strong dividend yield of 6.4 per cent and I think they have a very diversified network after their acquisition of Spectra last year.

CVS HEALTH (CVS.N)

CVS is a pharmaceutical benefits manager, retail pharmacy and drug store located throughout the U.S. They’re going through the regulatory approval progress of their proposed acquisition of Aetna, a health care benefits manager. The underlying retail pharmacy business provides a consistent stream of cash flow and CVS has a very strong track record of dividend and share buybacks. The recent noise and policy uncertainty around U.S. healthcare drug pricing has plagued the stock as of recently, but all this negativity is fully priced into the stock at current levels. CVS trades at less than 9 times earnings with a 3 per cent dividend yield. If the Aetna transaction goes through, there’s room for earnings to move significantly higher over the next few years.

ROXGOLD (ROXG.TO)

A high grade, low-cost gold producer located in Burkina Faso. They’ve a very strong asset base that’s currently producing above expectations. They also have further exploration potential as part of their asset base. The company generates significant free cash flow and they’re accumulating cash on their balance sheet. The company recently reported very strong production results to start the year and recently announced they will be allocating some free cash flow towards buying back stock.

PAST PICKS: MARCH 1, 2018

ALIMENTATION COUCHE-TARD (ATDb.TO)

• Then: $62.58
• Now: $53.60
• Return: -14.34%
• Total return: -14.21%

BROOKFIELD BUSINESS PARTNERS (BBU_u.TO)

• Then: $43.91
• Now: $48.37
• Return: 10.15%
• Total return: 10.15%

ENBRIDGE (ENB.TO)

• Then: $40.78
• Now: $42.85
• Return: 5.08%
• Total return: 5.08%

Total return average: 0.34%

WEBSITE: www.avenueinvestment.com