Stan Wong is vice-president and portfolio manager at Macquarie Private Wealth. His focus is North American large caps and ETFs.
The recent sell-off in the Canadian telecom sector based on the threat of Verizon’s foray into the Canadian marketplace has largely been overdone. Despite Verizon’s size and brand recognition, the company will face several obstacles in Canada: it will inherit smaller, less reliable networks through the potential acquisitions of Wind Mobile and Mobilicity; it will lack the strong distribution channels that the Canadian incumbents currently enjoy; and will be unable to offer bundled pricing similar to that of Telus, Rogers or Bell. Telus is attractive as the stock is oversold and it enjoys the position as the fastest growing Canadian telecom company. It currently yields a 4.3-per-cent dividend which is expected to grow by 10 per cent annually over the next several years.
JPMorgan Chase & Co.
JPMorgan is one of the world’s leading investment banks, with assets of nearly $2.4-trillion (U.S.) and operations in over 50 countries worldwide. JPMorgan’s core businesses look solid with strong mortgage banking fees, a rebound in investment banking and steadily rising net interest margins. Indeed, a recovering U.S. housing market, lower loan losses and improving capital markets is favourable for JPMorgan. JPM’s stock is compelling as it currently trades at a valuation discount and yields a 2.8-per-cent dividend which is projected to grow considerably over the next several years.
ProShares Short 20+ Year Treasury ETF
The ProShares Short 20+ Year Treasury ETF provides inverse exposure to the U.S. 20+ Year Treasury Bond Index. With a strengthening U.S. economy and the Fed indicating a tapering of monetary stimulus, this ETF provides an important hedge against bond risk exposure (rising interest rates) and will profit from declines in long-term U.S. Treasuries.
Past Picks: August 9, 2012
Total return: -17.22 per cent
Family Dollar Stores Inc.
Total return: +8.52 per cent
Whole Foods Market Inc.
Total return: +18.80 per cent
Total return average: +3.37 per cent
Equity investors appear to be growing accustomed to the eventuality of a tapering of Fed stimulus measures and consequently, higher long-term interest rates. As long as the U.S. economic recovery remains steady through continued improvements in employment and housing, it is very likely that U.S. stocks will continue their upward trend for the balance of the year. In Canada, struggling commodity prices along with an uncertain domestic housing market will continue to act as headwinds for most Canadian equities. Indeed, we maintain our considerable overweight of U.S. stocks over Canadian stocks in the expectation that the S&P 500 will continue to significantly outpace the S&P/TSX. U.S. large-cap companies with a combination of growing dividends and earnings continue to look especially attractive. In bond markets, good economic news will continue to be bad news for traditional fixed income investors as yields are expected to grind somewhat higher in the coming quarters.