Ed Sollbach at Desjardins Securities is making a couple of adjustments to his Focus 15 list of stocks - a narrow group of stocks that have been selected based on a quantitative system, which takes profit growth into consideration.
However, one of the switcheroos relates to good old dividends: Cineplex Galaxy Income Fund , with a current dividend yield of 6.1 per cent, is out of the list largely because the units have soared 61 per cent since being added. It is replaced by Davis + Henderson Income Fund , which has a yield of 10.4 per cent.
Also out: Jean Coutu Group (PJC) Inc. , which has also risen within the Focus 15 list but is now suffering from a slight decline in profitability and the threat of drug pricing reforms in Quebec. It is being replaced by Sherritt International Corp.
"Sherritt's 2.2 per cent yield is only slightly below Jean Coutu's (2.5 per cent) and is the highest amongst TSX base metals stocks," Mr. Sollbach said in a note. "Sherritt's profitability is growing strongly by 0.53 standard deviations per quarter, so it is rated a strong long-term buy in our quantitative work. We believe it will continue to benefit from the strong rebound in global growth...."
Meanwhile, in the debate over whether tumbling yields on U.S. government bonds is a sign of a bond bubble, Mr. Sollbach makes his position pretty clear: Beware the bubble.
He explains: "Government bonds are now the most-loved asset class, like stocks in 2000. We note that investors are chasing 30 years of good performance (10 per cent annually vs only an 11 per cent total return for the S&P 500, which is more risky) and 10 years of great performance for the 2000s (total return of 7.6 per cent annually vs -0.9 per cent for the S&P 500). Investors in 'safe government bonds' should consider that if 10-year interest rates return to the April level of 4 per cent, they will lose in capital about 4-times the current paltry 2.64 per cent yield from Treasury bonds."