David Cockfield's Top Picks: Feb. 2, 2018

BNN Bloomberg

David Cockfield , BNN

David Cockfield, managing director and portfolio manager at Northland Wealth Management
FOCUS: Canadian equities and ETFs

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MARKET OUTLOOK

Canadian and U.S. equity markets diverged in early 2018. As January came to an end, the TSX closed below its level at the end of 2017. The Dow in the same period closed up some 1500 points. While the passing of the tax cut legislation can take some credit for the Dow outperforming the TSX, there are probably other reasons.

The faltering NAFTA negotiations could well be the culprit. Despite the positive attitudes on the part of Canadian negotiators, the hostile comments by the U.S. side support the view that NAFTA is dead. Failure to approve NAFTA will have a major negative psychological impact on Canadian equity markets. Until the outcome of NAFTA negotiations are known, the TSX will not likely make new highs.

TOP PICKS

ISHARES NASDAQ BIOTECHNOLOGY INDEX (IBB.OQ)
Last purchased in January at $116.54.

This U.S. ETF seeks to track the investment results of an index composed of biotechnology and pharmaceutical equities listed on the NASDAQ. The exposure is 83 per cent biotech, 11 per cent pharmaceuticals and six per cent life sciences. Given the strong growth in the U.S. economy and an aging population, this sector should continue to have good upside. Expense ratio is a low 0.47 per cent.

VERMILION ENERGY (VET.TO)
Last purchased in January at $46.72.

A medium-sized Canadian oil and gas company with significant assets in Europe. The company sells its oil at premium Brent prices. The company has been able to work successfully with environmentally sensitive European authorities. The stock has a good yield of 5.5 per cent and offers a way to invest outside of North America’s oversupplied energy markets.

BCE (BCE.TO)
Last purchased in January at $57.36.

The largest communications company in Canada with an excellent record of earnings growth and dividend payouts. BCE is an economy stock – as the Canadian economy grows so does BCE. The stock was recently sold off and can be bought when the yield exceeds 5.0 per cent. The stock is an excellent source of safe income with dividend growth potential.