Fabrice Taylor's Top Picks: August 21, 2017

Fabrice Taylor, publisher of the President’s Club Investment Letter

Focus: North American equities
_______________________________________________________________

MARKET OUTLOOK
I’m still waiting for the inevitable correction. Stocks are richly valued, rates are rising and bond yields could follow — which would be bad for stocks, even though earnings have been okay — and market depth is deteriorating. Approaching mid-term elections in the U.S. could be the catalyst for a downturn if the Republicans lose ground because of animosity toward Trump. Since the market has rallied over hopes that he would cut taxes and red tape, anything that makes that less likely would, it stands to reason, hurt stock prices. Cash is king.

TOP PICKS

CANADIAN NATURAL RESOURCES (CNQ.TO)
At some point oil prices will rebound. I don’t buy the thesis that electric cars will destroy oil demand. They will have an impact, to be sure, but it will take a lot longer than the financial media says and the electric vehicle is still a developed-world toy. Even without an oil price rebound, CNQ looks attractive because with Horizon capital spending coming to an end, the company should generate $1 billion of free cash flow after paying its current dividend (yield of about three per cent). That suggests dividend hikes could be in the works, which should move the stock higher. And if we see higher prices, returns will be even better. I own it and bought it at $38.

COLABOR GROUP (GCL.TO)
Colabor Group is a food wholesaler and distributor in Eastern Canada, mainly Quebec. This is a turnaround story, as the company recently fixed its balance sheet with a rights issue. Debt is still high and, after three quarters of improving operations, we’ve see three relatively poor quarters. However, the stock is very cheap if the company can right the ship. Insiders have been buying stock aggressively, so I believe they will turn it around. I own it and last bought it at 93 cents.

STINGRAY MEDIA (RAYa.TO)
Stingray media provides music services for cable channels, retailers and other customers. This is a mature industry but there are many small players and acquisitions can be accretive. The company recently increased its dividend by 11 per cent and insiders have been buyers. I expect and hope to see acquisitions that can improve financial results in the coming months. I own it and last bought it at $8.60.
 

PAST PICKS: SEPTEMBER 9, 2016

NEW FLYER INDUSTRIES (NFI.TO)

• Then: $42.29
• Now: $51.74
• Return: 22.34%
• Total return: 25.11%

LIQUOR STORES N.A. (LIQ.TO)

• Then: $10.56
• Now: $8.86
• Return: -16.09%
• Total return: -13.38%

NEO LITHIUM CORP. (NLC.V)

• Then: $1.48
• Now: $0.97
• Return: -34.45%
• Total return: -34.45%

TOTAL RETURN AVERAGE: -7.57%