Ryan Bushell, president and portfolio manager at Newhaven Asset Management

FOCUS: Canadian dividend stocks

MARKET OUTLOOK:

Markets continue to defy gravity as the record rally is now broadening out to more sectors. Mega-cap technology stocks continue to look vulnerable given they traded down after reporting outstanding Q1 earnings and now face tougher comparable quarters going forward. On a macro level, the proposed tax increases by the Biden administration combined with the prospect of earlier than expected Fed tightening have the potential to hurt U.S. equity index performance on a relative basis. Meanwhile, the TSX has become one of the best performing stock markets globally in 2021 after years of underperformance. Newhaven’s primarily Canadian-listed, infrastructure-focused portfolios have performed extremely well so far this year with strong growth of dividends and share values. We remain cautiously optimistic on the prospects for the rest of 2021 as the vaccine rollout is gaining speed and remaining effective. The shift towards durable goods consumption, personal vehicle travel, and infrastructure development are tailwinds for our portfolios that should endure beyond 2021 as well.

TOP PICKS

Northland Power (NPI TSX) – Most recently purchased at $39.50

Northland Power is down more than 20 per cent from its 52 week high, and while I understand these stocks were due for a pullback, I think the downside has been excessive. We are on the verge of a massive post-pandemic energy demand boom that is going to be largely satisfied by fossil fuels. Governments and large corporations are already making numerous net-zero emissions pledges and are likely to face even more urgency going forward. Northland Power is a leading global offshore wind developer with the ability to supply material green generation needs in a world where prime onshore wind development sites are becoming scarce. Recent acquisitions notwithstanding, this company remains an attractive expertise bolt on for a major energy or infrastructure company looking to improve its sustainability profile. Our advice is to tuck some shares away at these levels, collect the three per cent yield, and patiently wait for either outsized growth, a takeover, or both.

NFI Group (NFI TSX) – Most recently purchased at $26.00

NFI Group is quietly transitioning into an EV/EV infrastructure company with their market leading Zero Emission Bus (ZEB). As the only North American based manufacturer of battery electric mass transportation vehicles, NFI Group stands to benefit from President Biden’s build back better infrastructure program. Backlog per unit continues to increase, which is an indication of the direction of new orders towards higher priced ZEB’s. New order quantities should increase once transit authorities become more comfortable with the technology and accelerate fleet replacement on the back of the pandemic, creating opportunity for NFI group to increase their market share and provide associated charging infrastructure. Recently the shares have sold off alongside renewable power producers as momentum money has streamed out of the “green” trade and into traditional cyclical energy producers, creating a solid buying opportunity.

Canadian Natural Resources (CNQ TSX) – Most recently purchased at $40.00

Canadian Natural Resources is a free cash flow machine and is in position to pay down nearly 1/3 of their outstanding debt in 2021 alone. The outlook for oil prices over the next few years is constructive given the success of vaccine rollouts to date. U.S. gasoline demand is increasing at a rapid rate and the Biden administration seems content to let oil prices float upward in an effort to steadily diminish long-term demand. Saudi Arabia and Russia will ultimately determine the path of prices this year, but absent a major shift in policy, oil prices seem sustainable at ~$60 and demand will remain price inelastic for quite some time. Over the weekend, a major cyber attack on U.S. energy infrastructure company Colonial Pipeline has brought North American energy security back into focus. Canadian Natural Resources remains well positioned to supply long-term energy needs on the continent and has a management team keenly focused on sustainability of the company and the dividend with a consistent focus on reducing GHG emissions and carbon sequestration technology.

PAST PICKS: April 6, 2020

Pembina Pipeline (PPL TSX)

Pembina endured a far more volatile year than warranted given the strength of their underlying business. I used the volatility to add to positions for clients in the $30 range last fall. Going forward the buildout of Western Canadian natural gas infrastructure is rapidly taking off with LNG Canada schedule to arrive in ~5 years. Pembina has one of the largest natural gas infrastructure footprints in the basin and stands to benefit from incremental volumes and more stable commodity pricing.

• Then: $27.50     
• Now: $38.58
• Return: 40%
• Total return: 52%

Brookfield Renewable Preferred Series E (BRF/PR-E) 

This recommendation was made immediately following the severe initial downdraft last March as a superior risk/reward opportunity. Preferred shares are senior to common shares in the capital structure, meaning they have less default risk in a worst-case scenario. Despite this protection, they often trade sloppily in a downdraft due to retail selling. I was very confident Brookfield Renewable wouldn’t be derailed by the pandemic. Investors who took advantage of this recommendation received a substantial return with far less risk relative to common equities during a very uncertain time.

• Then: $19.25
• Now: $24.95
• Return: 29%
• Total return: 29%

Altagas (ALA TSX)

Altagas had an operationally strong 2020 and enters 2021 with significant momentum. The company increased the dividend in Q4 by a modest four per cent ahead of schedule, signaling confidence in the balance sheet repositioning under new CFO James Harbilas. Following stellar Q1 earnings the shares have started to move but remain inexpensive relative to peers. The stock remains my largest position, both personally and for clients, and I am looking forward to more strong performance ahead.

• Then: $13.08
• Now: $23.96
• Return: 83%
• Total return: 94%

Total return average: 58%

WEBSITE: www.newhavenam.com