Matt Kacur, president at FSA Financial Science and Art

Focus: North American equities
_____________________________________________________________

MARKET OUTLOOK
We still think the best opportunities are in energy because the sector is still in recovery mode. Valuations are still very favourable in the sector despite a nice move off the bottom back in the spring of 2016. In addition to favourable valuations, companies in the sector have made adjustments to their businesses by selling assets, paying down debt, shutting down marginal projects and laying off workers. In short, costs per barrel of oil (BOE) are down and they can make money at the current price per barrel. 

From a broader perspective, we think the Trump administration is positive for the market in the short run due to tax and regulation reform. However, in the longer term we are concerned about protectionist and nationalist policies that could lower growth and cause inflation. For the time being we are bullish, but we are prepared to shift that view quickly if these policies cause inflation to rise.

TOP PICKS

CHEVRON (CVX.N)
Low-medium risk. Chevron is a fully integrated oil giant that is still undervalued in our work. Return on capital is at an all-time low, but that should improve due to stronger oil prices. In addition, the company pays a dividend that yields about 3.5 per cent.

ENSIGN ENERGY SERVICES (ESI.TO)
Medium risk. Ensign is an energy services company that we view as medium risk because services typically lag the producers and are more subjected to price swings during cycles. Nevertheless, Ensign appears undervalued in our work as the market seems skeptical about a recovery. The company pays a dividend that yields about five per cent.

LINAMAR (LNR.TO)
Medium risk. Linamar is an auto parts manufacturer whose shares traded down in 2016 due to speculation by investors about peak auto sales and a trigger to sell. The pullback was strictly speculative and not based on results. The company is still producing a solid 12 per cent return on capital and undervalued in our work. The shares seemed to have found a bottom a few months ago, as well.
 

PAST PICKS: NOVEMBER 22, 2016

SUNCOR ENERGY (SU.TO)

• Then: $42.63
• Now: $44.11
• Return: +3.47%
• TR: +4.17%

BORG WARNER (BWA.N)

• Then: $35.81
• Now: $41.10
• Return: +14.77%
• TR: +15.23%

MTY FOOD GROUP (MTY.TO)

• Then: $49.47
• Now: $49.55
• Return: +0.16%
• TR: +0.16%

TOTAL RETURN AVERAGE: +6.52%