Ryan Bushell, president and portfolio manager at Newhaven Asset Management
Focus: Canadian dividend stocks

MARKET OUTLOOK

Like many, I have been surprised by the strength and endurance of the rally from the March lows. The “whatever-it-takes” measures enacted by central banks and governments around the world seem to have more than compensated for the tremendous uncertainty that markets and the general population are facing at present. Currently, I have more questions than confidence when it comes to the fundamental backdrop for equities and the economy in general, including:

• What is the path for the pandemic as we head into the fall and winter?
• How many of the people that are currently unemployed will return to work in the next 12 months?
• How much has consumer spending retrenched and how much of that will endure?
• Will governments continue to support the unemployed beyond current respective limits? If so, for how much longer?
• How will the current civil unrest in the U.S. factor into the election?
• Is a Trump victory in November still strongly preferred by the market?
• Will the relationship between the U.S. and China continue to regress?

If any of these issues disappoint relative to current expectations, it could bring more downside volatility. To me, it comes down to one question: Is the current level of optimism in the market a result of “looking through the trough” and discounting a fast and strong recovery? Or are markets being fuelled by unprecedented monetary stimulus such that historical valuation limits are being adjusted upwards, as liquidity can’t accept current interest rates on fixed income securities of 10 years or less? The answer is likely both, but the degree to which the former is a part of the equation will determine how vulnerable current levels are if we’re disappointed by the pandemic, the economy/trade or the election. I believe there is a tremendous amount of potential for disappointment for each variable and as such, continue to hold some cash for clients. I still have a healthy respect for the changing paradigm as it relates to capital flows, so we remain invested in equities for the majority of accounts as well.

TOP PICKS

MANULIFE (MFC TSX)
Most recent purchase: $18.

Manulife has been a laggard in financial stock recovery and is starting to catch up. The 6.3 per cent dividend yield looks attractive in a world where financial markets remain stable, let alone how positive things appear to be at present. We like the new management team and have confidence that they are going to be able to regain the premium valuation that the company once enjoyed. 

SAVARIA (SIS TSX)
Most recent purchase: $12.

Savaria is the newest company in my portfolios and appears poised to capitalize on the now-stronger trend of wanting to age in the home. Their full suite of home accessibility products, including stairlifts and elevators, were already in high demand, but there should be a lasting increase in that demand following COVID’s impact on retirement and long-term-care facilities. Although the shares have run from my purchase level, I still feel they are attractive at current levels and the 3.3 per cent dividend yield should have room to grow. I am looking to add to positions on a pullback and imagine I am not alone.

TC ENERGY (TRP TSX)
Most recent purchase: $60.

I recently added to positions in TC Energy for the first time in a long time for clients who had missed the previous highs. The company remains extremely well positioned whether Keystone XL gets built or not and I think you have seen optimism around that project be removed from the shares during this recent drop. Longer term, the 5.25 per cent dividend yield is well covered and can steadily grow.

PAST PICKS: JULY 15, 2019

ARC RESOURCES (ARX TSX)

• Then: $6.56
• Now: $5.92
• Return: -10%
• Total return: -4%

INTER PIPELINE (IPL TSX)

• Then: $22.40
• Now: $13.88
• Return: -38%
• Total return: -33%

CIBC (CM TSX)

• Then: $102.93
• Now: $97.72
• Return: -5%
• Total return: -1%

Total return average: -13%