Fabrice Taylor, Publisher, The President’s Club Investment Letter

FOCUS: North American equities

_______________________________________________________________

MARKET OUTLOOK

With interest rates low and unlikely to be heading higher any time soon, stocks will probably keep moving higher. In the shorter term, we might be vulnerable to a pullback given how strong this year has been. Dividend stocks in particular should keep doing well because investors need yield and they’re not going to get it from bonds, so they will have to move into equities that pay dividends. Most investors underestimate what that means. If you buy a stock yielding 5 per cent today, and if in a year from now investors are willing to accept a 4 per cent yield from that same stock, you will make 30 per cent on your investment. 

Top Picks

New Flyer Industries (NFI.TO)

While I don’t expect the shares to double again, I do think there is more upside. The company recently “lost” a bus order from the New Jersey transit authority but that will likely just be pushed into next year. Otherwise, the order book looks strong and the valuation is reasonable, although not a value stock. I expect dividend growth over the next few years as well. I own it and last bought it this month for $42.

Liquor Stores North America (LIQ.TO)

The shares took a beating from the recession in Alberta and Western Canada, which account for two-thirds of sales. But with a focus on cost reduction and margin improvement through things like private-label branding and store refurbishment, the stock has likely bottomed. The board cut the dividend earlier this year, which was prudent and allows for growth spending. I expect the company to open more news stores, which should help offset weakness in Alberta, and eventually Western Canada should rebound and once same-store sales start to show growth, the stock should get a higher multiple as well. I own it and last bought it this month for $10.40

Neo Lithium Corp (NLC.V)

This is the “lottery ticket” pick and should be treated as such. Analysts expect demand for lithium to grow rapidly if and as electric cars start to gain market share. This offers hope for lithium deposits, and Neo’s appear to be of high quality. It’s a recently discovered salar-type deposit, meaning the lithium is in a brine, which is typically the most economical source of lithium. The deposit is in Argentina, and accessible by road. Management is experienced in both mining and finance and the company has $17 million of cash to advance the project. I own it and last bought it this month for $1.42. 

Diversified Royalty Corp (DIV.TO)

Alberta has hurt the stock price but the restaurant business was just sold, reducing the Alberta drag tremendously and cashing up the balance sheet. The dividend isn’t covered by cash flow, but I doubt they will cut it. They will pay it out of cash while they look for a new royalty.

• Then: $2.95
• Now: $2.41
• Return: -18.31%
• TR: -9.53%

Convalo Health (CXV.V)

The entire healthcare space has collapsed, but the company also hasn’t delivered. Revenues are coming in but at higher cost. If the company doesn’t bring in experienced management soon it’s time to head for the exits.

• Then: $0.28
• Now: $0.11
• Return: -58.93%
• TR: -58.93%

New Flyer Industries (NFI.TO)

I expected good things but not this good. Still, I think there is more upside as aging bus fleets must be renewed.

• Then: $18.86
• Now: $42.60
• Return: +125.87%
• TR: +131.15%

Total Return Average: +20.90%

Twitter: @clubresearch

Website: presidentsclub.ca