Andrew Pyle’s Top Picks
David Baskin, chairman and CEO, Baskin Wealth ManagementFOCUS: North American large caps
It appears that inflation is now likely to be in the three per cent range for the next few months. It is unlikely that North American central bankers will raise rates any further, barring a surprise spike in prices. As a result, we expect to see an easing of longer-term bond yields as institutional investors in particular lock in current yields. Recent economic data on employment and consumer spending is mildly positive, so we expect that third-quarter earnings will be largely as expected.
We do think that certain parts of the technology sector, particularly those related to AI, are ahead of themselves and due for a drawdown. With interest rates set to fall, we should see an uptick in the very beaten-up high-yielding sectors including utilities, pipelines and banks. Oil prices remain a wild-card, and have the capability of causing market problems in the next few months. We see the outlook for crude and natural gas as mostly positive.
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BCE stock has sold off with other high dividend-yielding companies, recently showing a new 52 week low, which we view as overdone given the stable, resilient nature of BCE’s business. BCE has the lowest leverage of the “Big Three” telecoms with a long-dated maturity profile. Dividend growth will also be supported by strong free cash flows as BCE completes its capital program on fiber and 5G. With investors getting a tax-advantaged dividend yield of 7.2 per cent, we think this is an attractive investment for yield seekers, particularly as interest rates start to decline.
BNN Bloomberg is owned by Bell Media, which is a division of BCE.
CAPREIT is the largest apartment landlord in Canada. CAPREIT’s portfolio historically focuses on older rent-controlled buildings and CAPREIT has been hurt in recent years by strict rent control guidelines, cost inflation, and low moving activity. CAPREIT has shifted its portfolio strategy recently to focus on acquiring newly completed buildings that are not subject to rent control, at prices below replacement cost, which should result in stronger rent growth going forward. With the current housing crisis, CAPREIT will also benefit from looser land-use restrictions by developing its unused space such as parking lots. We think shares are attractively valued at a 20 per cent discount to net asset value. We should see the distribution and the yield rise as the average rents increase.
Under CEO Mike Rose, Tourmaline has built up the largest inventory of low-cost natural gas reserves in Canada in under 15 years. Tourmaline has done a terrific job of acquiring quality reserves at attractive prices, building up a processing network, and diversifying its end markets to achieve superior pricing to AECO. We think Tourmaline can increase production by six per cent annually over the next five years while benefitting from structurally improved Canadian gas pricing as LNG Canada and other sources of egress get completed. With shares trading at a discount to proved reserves with no debt, we think shares are attractively valued.
PAST PICKS: August 9, 2022
Amazon.com (AMZN NASD)
- Then: US$137.83
- Now: US$136.82
- Return: -1%
- Total Return: -1%
Costco (COST NASD)
- Then: US$535.82
- Now: US$560.19
- Return: 5%
- Total Return: 5%
TD Bank (TD TSX)
- Then: $82.78
- Now: $83.37
- Return: 1%
- Total Return: 5%
Total Return Average: 3%