Ryan Bushell's Top Picks: October 14, 2021

MARKET OUTLOOK:

The worst global pandemic in a century seems to finally be retreating in most regions, a welcome development following the brutal delta variant driven wave. Vaccines have thankfully stood up to the test of broad reopening initiatives, but it remains to be seen how the colder winter months will play out alongside potentially waning vaccine efficacy.  

One would think that the pandemic’s retreat would be universally positive for the global economy, but we have a murkier picture developing. The last 18 months of coordinated global stimulus was like a break wall standing up to an economic hurricane. Only as the storm recedes can we properly survey the damage and begin to make repairs.  

At present, it appears the damage is significant and will take years, if not decades, to repair. Central bankers have an even tighter needle to thread with regard to withdrawing stimulus (raising interest rates) given how much more leveraged governments, consumers, and asset markets are relative to the aftermath of the 2008-2009 financial crisis, but at the same time they cannot allow inflation to spiral out of control.  

I remain cautious on the next 6-12 months for broad equity market indexes given elevated prices for many sectors relative to economic fundamentals. Fortunately, at Newhaven, we do not own the areas of the stock market most exposed to an economic slowdown. Our portfolio has significant exposure to the global energy market as nearly 50 per cent of our portfolio holdings are involved in the production, transportation, and distribution of energy in various forms.   

Although the great majority of our exposure to the global energy market is infrastructure based and not sensitive to commodity prices, a renewed focus on this critical sector is beneficial for our portfolio as valuations are now beginning to better reflect fundamentals.  

TOP PICKS:

Enbridge (ENB TSX)
Last bought at $51
The completion of the Line 3 Replacement project combined with the Canadian government finally invoking our rights under the 1977 pipeline treaty regarding the Line 5 dispute in Michigan are two significant positive developments for the company in the last few weeks.  

Additionally, the current global energy shortage should reinforce the long-term value of critical energy infrastructure. Enbridge presently trades at a 6.5 per cent dividend yield (with an increase coming in Q4!), too high given present circumstances and comparable alternatives. Look for the stock to perform well in Q4, reducing the discount to other utility and pipeline companies.

Algonquin Power and Utilities (AQN TSX)
Last bought at $18.50
Algonquin Power and Utilities has an ideal balance of steady utility cash flow and renewable development opportunities. The company has performed poorly recently as investors seem worried about the prospect for both rising rates and rising energy costs to hamper utility returns.  

This is a shorter term view that creates a buying opportunity with the stock yielding nearly 5 per cent.  Longer term, the world needs increasing amounts of cleaner energy and Algonquin is well positioned to take advantage of this secular trend, while paying a steadily increasing dividend.

Brookfield Infrastructure Partners (BIP-U TSX) 
Last bought at $70
Brookfield’s recent purchase of Inter Pipeline appears well timed given the price paid in July for the fundamentals developing this fall. Natural gas volumes in Western Canada are poised to increase, not only in 2021, but throughout the decade as LNG Canada nears completion, benefitting both the Inter Pipeline assets as well as the Enbridge assets purchased earlier. 

Additionally, some of Brookfield Infrastructure’s global assets should benefit from broader reopening initiatives (toll roads, transit etc). With mid-single digit dividend growth reasonably assured this company will continue to provide suitable returns for long-term investors.

PAST PICKS: September 25, 2020

Algonquin Power (AQN TSX) 

• Then: $19.01
• Now: $18.52
• Return: -3%
• Total Return: 3%

Pembina Pipeline (PPL TSX)

• Then: $28.91
• Now: $41.91
• Return: 45%
• Total Return: 54%

Altagas Preferred Shares K (ALA-PR-K TSX)           

• Then: $21.95
• Now: $25.34
• Return: 15%
• Total Return: 15%

Total Return Average: 24%