Full episode: Market Call for Tuesday, May 8, 2018
Fabrice Taylor, publisher of the President’s Club Investment Letter
Focus: North American equities
Commodities are still very cheap relative to financial assets, which usually means they're poised to keep moving higher and drag the stocks of producers with them. That could be good for Canada, where markets have been hurt by bad government policies and the marijuana vortex, which has sucked capital out of just about every other sector. I think one has to be mindful of interest rate risk however. We haven’t had a normal interest rate cycle for a decade. Investors have forgotten what rising debt service costs can do to a company and what increasingly attractive bond rates can do to stock prices.
Latest purchase: December at $34.
Few companies have the growth profile of goeasy. The latest quarterly figures showed loan book growth of 55 per cent year-over-year and the company has access to enough capital to fund aggressive growth for a couple of years. Yet the stock trades for a mere 14 times trailing earnings. The company could earn $5 per share next year against a current stock price of less than $40, so it's cheap. If the price-to-earnings multiple doesn't change, this is a $70 stock in two years. If it expands, the return is even better.
POWERSHARES DB COMMODITY INDEX TRACKER (DBC.N)
Latest purchase: April at $16.85.
This ETF tracks an index of 14 commodity prices through the use of futures contracts,so it's a good proxy for a commodity basket. Energy is capped at 60 per cent. Commodity prices relative to financial assets are at historic lows, which usually means they’re set to move sharply higher. This is simply a bet that history will repeat itself, or at least rhyme.
TREE ISLAND STEEL (TSL.TO)
Latest purchase: May at $2.70.
Tree Island Steel produces steel-wire products like fencing and nails. It’s been hurt by higher input costs for the past couple of years, but there are signs that recent price increases are sticking and in turn improving margins. If this keeps going, investors may reap significant rewards over time. The company also pays a small dividend yielding 2.5 per cent.
PAST PICKS: MAY 30, 2017
HELIUS MEDICAL TECHNOLOGY (HSM.TO)
Helius Medical was recently uplisted to the Nasdaq, which is a milestone. We’re now awaiting FDA approval of its neural stimulation device, which should be a given because it poses no safety risks and caters to what is known as an "unmet need." Once that's achieved, the company can start selling its devices. Early indications are that demand will be strong. If all goes according to plan, this could be a $50 stock.
- Then: $2.15
- Now: $11.57
- Return: 8%
- Total return: 8%
RIO TINTO (RIO.N)
Rio Tinto is still a cash cow with a decent dividend that could be increased. Commodity prices are healthy and the world economy reasonably strong, so there should be more upside.
- Then: $41.30
- Now: $54.88
- Return: 33%
- Total return: 41%
TECK RESOURCES (TECKb.TO)
Teck should benefit from continued strength in zinc prices and commodities in general. It generates significant free cash flow, which could lead to money being returned to shareholder through a higher dividend or buybacks.
- Then: $25.31
- Now: $33.54
- Return: 33%
- Total return: 36%
Total return average: 28%