Over the last quarter, economic indicators have deteriorated somewhat suggesting that economic growth will moderate even further in coming months.  Earnings results have diminished as 2015 saw an 11% drop in S&P 500 earnings compared to 2014.  Expectations for 20% year-over-year earnings growth for the S&P 500  in 2016 appear too optimistic and will likely be ratchetted down as the year progresses.  In the meantime, US stock prices are still close to all-time highs meaning that valuations have become stretched. The S&P 500 is trading at nearly 17 times 2016 expected EPS.  This is setting up prospects of further market pullbacks occurring over the course of 2016.  In such an environment a barbell approach to investing makes a lot of sense.  On one side investors want to concentrate on stocks that will provide strong, secure dividends (with an emphasis on safety).  On the other side, investors can chose select growth stocks whose business models are so strong that they can continue to grow earnings in any economic landscape.

TOP PICKS:

Linamar (LNR.TO) 

Last bought on Feb 1, 2016 at $56.27

Linamar is Canada’s 2nd largest auto parts company, employing 19,500 people across 48 manufacturing facilities worldwide.  The family controlled company continues to benefit from outsourcing of automobile component design, manufacturing and assembly by auto companies around the world.  Revenues and EPS increased 24% and 36% in 2015, respectively.  Record revenues were achieved for the 5th consecutive year.   Linamar is currently launching 169 programs representing $3.8 billion of sales (at peak).  This is expected to add incremental sales of $500 to $600 million in 2016, providing an extra 10% boost to 2016 revenue growth.   With revenue and EPS expected to grow 20% and 13%, respectively, in 2016, Linamar currently trades at an attractive 8.5 times forward earnings.

Painted Pony Petroleum (PPY.TO)

Last bought on Jan 14, 2016 at $3.16  

Painted Pony is a junior company with a senior company asset.  With the latest reserve reports in, Painted Pony now has the 4th largest natural gas reserves (4.6 trillion mcfe on a proved plus probable (2P) basis) among publicly traded oil and gas companies in Canada, only behind CNQ, ECA, and TOU.   After the completion of the Altagas’s Townsend gas processing this summer, Painted Pony expects to ramp up its gas production from 16,000 today to 40,000 be the end of 2016.  At current strip prices, the company expected to generate more casfflow in Q4 2016 than all of 2015. Based in the NE British Columbia Montney region, Painted Pony enjoys a reduced royalty rate of 3%, and sells 70% of its production directly to customers in British Columbia and upper North West United States.  Painted Pony has plans to grow to 100,000 boe/d by the end of the decade. 

BofI (Bank of Internet) Holdings (BOFI.O)

Past Picks: Mar. 9, 2015

Home Capital Group (HCG.TO)

Canadian Utilities (CU.TO)

BofI Holdings (BOFI.0) *stock split 4/1 on Nov. 18, 2015*

Total Return Average : -11.06%