Jan 16, 2019
Robert McWhirter's Top Picks: Jan. 16, 2019
Full episode: Market Call for Wednesday, January 16, 2019
Robert McWhirter, president of Selective Asset Management
Focus: Canadian dividend and small-cap stocks
From Oct. 11 to the close on Dec. 27, the S&P/TSX index declined 7.5 per cent, the S&P 500 was down 8.8 per cent, the U.S. 10-year bond yield declined 15 per cent and WTI oil declined 42 per cent to $44.61. At the end of November, our Canadian dividend strategy offered by Enriched Investing held 50 per cent cash. Our current “buy” list is sparse because we’re waiting for sustained equity price improvement.
The S&P/TSX is up over 9 per cent since the lows of the Dec. 24 week. Technical analyst Leon Tuey said in January that the correction is done and that the bull market has resumed.
Gold has traded between US$1,130 and US$1,380 for the past five and a half years. It has recently risen 10.4 per cent from its mid-August 2018 low to US$1,288 on Jan. 15. Mark Deriet, quantitative and technical analyst at Cormark Securities, downgraded the U.S. dollar and upgraded gold as a buy as it traded above its 80-week moving average. Gold stocks are some of the few companies that are making new one-year highs as earnings growth continues.
From its October high of US$76.90 to its December low of US$42.36, WTI oil declined 45 per cent. It has since regained 28 per cent of its decline to US$52.11 and appears headed higher.
The U.S. yield curve (two- and 10-year) has not inverted. U.S. 10-year bond yields, now near a nine-month low of 2.71 per cent, are also technically “oversold” and like equity markets are expected to move higher.
Emera invests in electricity generation, transmission and distribution, and gas transmission and utility energy services. It has a 5.3 per cent yield, a modest 33 per cent payout ratio of trailing four quarter cash flow. Emera’s year-over-year earnings per share grew 29 per cent in Q3. The company’s cash flow growth per share has accelerated from 8 per cent compound annual growth rate (CAGR) to 12 per cent CAGR on a three-year basis to 70 per cent on a year-over-year basis. It has increased its dividend by 8 per cent in the past year.
The company is expected to report earnings on Feb. 8. The forecast is of $0.67 versus $0.64, a 5 per cent increase. Analysts’ median price target of $47.50 implies a potential 11 per cent total return. Emera is held in the Canadian Dividend Strategy, offered by Enriched Investing.
NORTHLAND POWER (NPI.TO)
Northland has a 5.3 per cent yield, a modest 18 per cent payout ratio of four quarter trailing cash flow. It reported on Nov. 6 that year-over-year sales per share grew 17 per cent, while earnings per share grew 151 per cent.
Northland is expected to report earnings on Feb. 21. The forecast is $0.28 versus $0.20, a 40 per cent increase. Northland Power has a high 35 per cent return on equity (ROE) and a high 8.1 per cent free cash flow yield, up 75 per cent year-over-year ($324 million trailing 12 months). Earnings per share (EPS) is forecast to grow 29 per cent in 2019, giving a price-to-earnings (P/E) ratio of 15.5 times. With 45 per cent further EPS growth forecast for 2020, a P/E of 10.7 times and a P/E to EPS growth rate (PEG) of 0.24, Northland’s shares appear attractive. Analysts’ median target price of $26 implies a potential 20 per cent total return.
Rogers is Canada’s largest wireless service provider (60 per cent of sales), with 10 million subscribers. The cable segment is 25 per cent of sales and the media group is 15 per cent. Rogers has a 2.8 per cent yield, a modest 22 per cent payout ratio of four quarter trailing cash flow. The company last reported on Oct. 19: year-over-year sales per share grew 4 per cent, while EPS grew 12 per cent. Rogers has a 1.9 per cent trailing 12 month free cash flow yield ($690 million). EPS is forecast to grow 18 per cent in 2018 and 7 per cent in 2019, giving a 31 per cent ROE and P/E of 15.8 times this year, with 7 per cent further EPS growth forecast for 2020.
Rogers is expected to report earnings on Jan. 24. The forecast is $1.09 versus $0.88, a 23 per cent increase. Joe Farrell, technical analyst at Velocity Trade Capital noted that “a sustained breakout above $71 counts further technical upside in excess of $85,” implying 18 per cent upside. Rogers Communications is held in the Canadian Dividend Strategy, offered by Enriched Investing.
PAST PICKS: FEB. 20, 2018
CANADIAN TIRE (CTCa.TO)
- Then: $177.80
- Now: $145.03
- Return: -18%
- Total return: -17%
OPEN TEXT (OTEX.TO)
- Then: $44.24
- Now: $45.81
- Return: 4%
- Total return: 5%
WEST FRASER TIMBER (WFT.TO)
- Then: $86.80
- Now: $70.29
- Return: -19%
- Total return: -18%
Total return average: -10%
FUND PROFILE: CANADIAN DIVIDEND STRATEGY
PERFORMANCE AS OF: DEC. 31, 2018
- 1 month: -3.4% fund, -5.4% index
- 11 months: 13.2% fund, -7.6% index
INDEX: S&P/TSX Total Return Index.
TOP 5 HOLDINGS
- Cash: 73%
- Waste Connections: 6.1%
- Quebecor: 6%
- Aecon Group: 5.2%
- Rogers Communications: 4.9%