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

MARKET OUTLOOK

Markets have turned very positive of late as thawing trade tensions and an accommodative Federal Reserve have lifted sentiment and bond yields broadly. Additionally, economic data has been more upbeat on balance which has added to confidence and propelled equity benchmarks to new highs. It would appear we’re set up for a solid end to the year barring any major geopolitical events as earnings season is largely in the rear view mirror and there are few fundamental catalysts remaining to derail 2019 market performance. Although some market participants are wary of the December flash crash we endured last year, I would place a low probability on a repeat occurrence simply because of the about-face by the Fed and the drop in benchmark 10-year U.S. Treasuries from 3.25 per cent at this time last year to about 1.85 per cent today.

Beyond year-end though, I remain very cautious on 2020 and beyond. The only positive catalyst we have on the horizon is an official end to the trade war with China, which may already be largely priced in, while potential negative events are numerous. Election years are notoriously bad for markets as the uncertainty for public policy in the largest economy in the world is always a negative and is likely to be especially relevant in the current polarized climate. Elizabeth Warren winning the Democratic Party nomination and polling well nationally represents the most dire outcome for equity market sentiment as energy, technology and broad corporate tax relief would find themselves in her crosshairs. Separately but related, the impeachment proceedings will likely pick up steam in early 2020 and any damage they do to Republican hopes of winning the 2020 presidential election and maintaining a stalemate in Congress bear watching. Globally we still have Brexit, Hong Kong a simmering Iranian situation and a host of other problems that could flare up at any moment. The current record highs and stretched valuations are seemingly out of step with the amount of risk globally and I could definitely see the opportunity for a sizeable correction in 2020. WeWork, Uber and marijuana companies have been early casualties of the risk reset in 2019, but they’re only the most egregious examples of improper assessments by investors. I remain wary of technology shares more broadly and given their weighting in the S&P 500, the passive response to a technology-led sell-off could be material and have broader implications for valuations globally.

TOP PICKS

TD BANK (TD:CT)
Most recently purchased at $76.

Financial stocks are poised to benefit from a steepening yield curve recently combined with a better attitude toward traditional value stocks generally. Canadian banks have underperformed both the TSX and other financial stocks over the last year and TD has been in the middle of the Big 5 pack despite having the highest dividend growth and a strong U.S. franchise. This is our largest Canadian bank holding and we continue to be buyers in the mid $70s.

INTER PIPELINE (IPL:CT)
Most recently purchased at $21.50.

Inter Pipeline continues to make progress on their Heartland Petrochemical Complex (HPC) and said on their last call that it was ahead of schedule and on budget. As the project is de-risked (currently 60 per cent), the market will likely gain confidence in the EBITDA growth profile post 2021. Catalysts include any material disclosure related to the intake/offtake for HPC as well as the possible sale of their bulk liquids storage business in the U.K./Europe. They reported a weak quarter recently in their NGL business, but Q4 is setting up strong and we get paid a hefty 8 per cent dividend yield to be patient here.

NFI GROUP (NFI:CT)
Most recently purchased at $27.

NFI reported another disappointing quarter last week, but we remain confident in the long-term trajectory of the company. Following the investor day on Friday, I came away with a renewed sense of management’s ability to survive and thrive in an industry that is rapidly changing. Electrification represents a challenge for the company but also a huge opportunity as they are ahead of the curve relative to competitors. They can also capture other parts of the value chain by aiming to provide a turn-key solution including infrastructure, training, parts and service in addition to the actual buses. With a solid dividend yield, investors can afford to be patient as leverage is reduced from the Alexander Denis transaction and orders recover.

PAST PICKS: JAN. 15, 2019

TD BANK (TD:CT)

• Then: $69.33
• Now: $76.59
• Return: 10%
• Total return: 14%

MANULIFE (MFC:CT)

• Then: $20.86
• Now: $25.89
• Return: 24%
• Total return: 30%

NUTRIEN (NTR:CT)

• Then: $65.91
• Now: $64.48
• Return: -2%
• Total return: 0.3%

Total return average: 15%

WEBSITE: newhavenam.com