Lyle Stein, senior portfolio manager and managing director at Vestcap Investment Management
Focus: Canadian equities

MARKET OUTLOOK

What a strange trip it has been! Since the end of the third quarter last year, we’ve seen a bear market collapse, a bull market recovery and we may today be in the midst of a painful correction. With markets driven by interest rates and earnings, we ascribe the bulk of the fourth-quarter selloff and ensuing first-quarter recovery to interest rate expectations doing a 180-degree turn. Where we find ourselves today is very similar to where we were back late last summer: concerned that earnings growth is stalling (China, Europe in particular) and that global debt levels are rising. Liquidity has driven markets in 2019, and the Fed is now perceived to be the market’s friend, a view that in our opinion might easily be tested in the months ahead. We remain cautious, holding above-average cash and below-average fixed income in balanced accounts.

TOP PICKS

Lyle Stein's Top Picks

Lyle Stein, senior portfolio manager and managing director at Vestcap Investment Management, shares his top picks: Disney, Suncor and Teck Resources.

DISNEY (DIS.N)
Bought at $115.

Disney is a changing company. Its Disney + streaming service should have an exciting offering in the over-the-top (OTT) space. Yesterday’s Hulu announcement only adds to the company’s OTT presence. The Fox acquisition makes Disney a dominant content provider with an inventory second to none. Theme park strength is also a plus.

SUNCOR ENERGY (SU.TO)
Bought at $43.

Suncor is a long-term cash flow machine: $12 billion per year with WTI at $60. After capital expenditures ($6 billion), free cash goes to dividends/buybacks or debt reduction. Debt is at 1-time cash flow, so there’s little balance sheet risk. Refining assets provide a hedge against the WCS discount. Current dividend yield is 3.9 per cent with significant room to grow. This is a contrarian call on the economic cycle.

TECK RESOURCES (TECKb.TO)
Bought at $30.

Another long-term cash flow machine: $3.5 to $4 billion from met coal, copper, zinc and oil, all profitable businesses. Teck’s balance sheet is excellent at 15 per cent debt-to-capital, with debt now upgraded to investment grade.

Teck is playing cycles very well. It built Fort Hills in low prices; now it’s getting higher prices. It added zinc into peak zinc prices. It’s now expanding copper (the Quebrada Blanco Phase 2 project) in time for the next cycle shortage expected in 2022 and beyond. Capital disciplined. Teck pays special dividends or buys back shares. Another contrarian call on the economic cycle.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
DIS Y Y Y
SU Y Y Y
TECKb Y Y Y

 

PAST PICKS: APRIL 26, 2018

Lyle Stein's Past Picks

Lyle Stein, senior portfolio manager and managing director at Vestcap Investment Management, reviews his past picks: Enbridge, Hudbay Minerals and Tricon Capital Group.

ENBRIDGE (ENB.TO)

  • Then: $37.92
  • Now: $49.33
  • Return: 30%
  • Total return: 40%

HUDBAY MINERALS (HBM.TO)

  • Then: $9.11
  • Now: $6.79
  • Return: -26%
  • Total return: -25%

TRICON CAPITAL GROUP (TCN.TO)

  • Then: $10.01
  • Now: $10.49
  • Return: 5%
  • Total return: 8%

Total return average: 8%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ENB Y Y Y
HBM Y Y Y
TCN Y Y Y

 

WEBSITE: vestcap.com
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