Full episode: Market Call Tonight for Tuesday, December 10, 2019
Paul Gardner, partner and portfolio manager at Avenue Investment Management
Focus: REITS, bonds and dividend stocks
The wave of volatility from the summer and fall due to U.S. trade wars, Brexit and the view that the global economy was in recession, has now receded. As expected, we now are hitting all-time highs on the TSX. We believe that the rally will continue, as the usual Christmas rally has started and that the latest stock market rally is one of the most detested when talking to stock investors.
Next year, investors will have to deal with a threat of a recession in North America (which doesn’t look likely when looking at last Friday’s U.S. employment report) and trade wars. We still believe that Canadian securities are cheaply priced relatively to U.S. valuations. We are starting to see a small recovery in the energy sector, which has the opportunity to rally into the new year.
The market also readjusted the bond market by selling off and now we are finding higher yield levels (although still very low from a historical basis). After the sell-off in bonds, we believe they will stay in a narrow range until we find out what sticks more between growth or inflation.
Commodities should stay bid into the fall. Therefore, I would expect a continued outperformance by Canadian markets versus its expensive U.S. peers.
BOARDWALK REIT (BEI-U:CT)
Boardwalk has suffered due to its high exposure to Alberta rental properties. The softening provincial economy has caused the REIT to underperform its comparables in the other provinces. Avenue believes the disconnect is too large and that on a per-door basis valuations are too cheap. We think Boardwalk exposure is heavily favoured from a risk/return perspective.
TIMBERCREEK FINANCIAL (TF:CT)
Timbercreek is a conservative commercial finance lender. It gives a healthy 7 per cent yield and its exposure is well diversified geographically and sector-wise. The yield is the objective in this low-yield environment.
INTER PIPELINE (IPL:CT)
Although the last quarterly release by the company showed weakness in certain segments, we believe that it trades too cheap to the fundamentals. Analysts are waiting for more direction on its $3-billion Heartland expansion, which seems to be on time and on budget. In 2021, this should add tremendous cash flow.
PAST PICKS: NOV. 22, 2018
WPT INDUSTRIAL REIT (WIR-U:CT)
- Then: $12.59
- Now: $14.24
- Return: 13%
- Total return: 20%
YELLOW PAGES (YCN 8 11/30/2022 TSX): Convertible 8% 2022 bonds
- Then: $96.15
- Now: $101.72
- Return: 6%
- Total return: 14%
BCE INC. (BCE:CT)
- Then: $55.79
- Now: $64.39
- Return:15 %
- Total return: 22%
Total return average: 19%
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