Rob Lauzon, deputy chief investment officer at Middlefield Capital Corporation

Focus: Global dividend equities
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MARKET OUTLOOK
Our view is that the stock market will end the year on a positive note, with the Q4 rally beginning post the U.S. election. We feel the earnings recession is over in the United States as Q3 earnings currently look to be stronger than expected, resulting in the first positive year-over-year earnings comparison since Q2 2015. Moreover, the price of a barrel of oil has recovered from its early 2016 low to the $40 to $50 range, which augurs well for both revenue and earnings over the coming year. The upward movement in WTI crude oil will also have an effect on inflation. Bond yields have started to price in an expected rate hike by the Fed in December as well as higher, expected inflation. The stock market is pricing in these factors through the recent lag in share prices in REITs, consumer defensives and utilities, while financials, which typically do better in a rising rate environment, have performed well. Typically, the stock market performs positively when the financial sector shows relative strength. Other reasons to remain bullish on equities as we enter 2017 include a strong U.S. consumer, the recent record number of household formations, global fiscal stimulus announcements, and positive leading economic indicators pointing toward global growth improvement in 2017.

We expect merger and acquisition activity to continue to be robust as companies are looking for strategic levers to pull, offsetting disruptive forces occurring in many industries in addition to synergies from cost cutting. Also, the fear of higher financing costs due to higher rate expectations has expedited potential M&A deals.

TOP PICKS

BRISTOL-MYERS SQUIBB (BMY.N) – Purchased Oct. 24 at US$49.20
Notwithstanding the market reaction to the failed first-line lung cancer trial for Opdivo, we see patience with BMY being rewarded with Opdivo being approved for other immuno-oncology treatments in addition to their combo strategy for the drug attaining large market share. In addition to a very strong portfolio of assets, BMY provides investors with a solid three per cent dividend yield.

RIOCAN REIT (REI_u.TO) – Purchased Oct. 28 at $26.05
Recent weakness in the shares due to interest rate fears has created a buying opportunity for Canada’s largest retail REIT. The REIT continues to demonstrate organic growth opportunities within its development portfolio, providing investors with both mid-single-digit cash flow growth in addition to a solid five per cent dividend yield. There is also the potential for increased buying interest if RioCan gets added to the TSX60 in the coming quarters.

BANK OF AMERICA (BAC.N) – Purchased Oct. 31 at  US$16.65
BAC reported a strong third quarter on the back of stronger trading, investment banking and expense management.  Valuation is attractive at a 10x P/E ratio versus the market at 16x forward earnings. Core holding as rates nudge higher in the U.S. with the potential for a dividend increase in 2017.
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BMY.N N N Y
REI_u N N Y
BAC N N Y


PAST PICKS: JULY 30, 2015

TORC OIL AND GAS (TOG.TO)

  • Then: $7.12
  • Now: $7.74
  • Return: 8.70%
  • TR: 16.60%

ARC RESOURCES (ARX.TO)

  • Then: $20.33
  • Now: $23.00
  • Return: 13.13%
  • TR: 19.49%

WHITECAP RESOURCES (WCP.TO)

  • Then: $11.71
  • Now: $10.84
  • Return: -7.42%
  • TR: -1.28%

TOTAL RETURN AVERAGE: +11.60%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TOG N N Y
ARX N N Y
WCP N N Y


FUND PROFILE: GLOBAL DIVIDEND GROWERS INCOME FUND

Performance as of September 30, 2016:

  • 1 month: Fund 0.9%, Index* 0.19%
  • 1 year: Fund 1.0%, Index* 10.5%
  • 3 year: Fund 12.3%, Index* 8.13%

* Index: MSCI World Total Return
* Net of fees


TOP HOLDINGS

  1. Bristol-Myers Squibb
  2. ING Groep NV
  3. Rite-Aid
  4. Bank of America
  5. Royal Dutch Shell


WEBSITE: www.middlefield.com