Paul Gardner is a partner and portfolio manager at Avenue Investment Management. His focus is on fixed income, large cap dividend-paying stocks and REITs.
Wells Fargo & Co.
WFC is a “best in class” bank in the United States. Avenue Investment believes that the U.S. housing industry is improving rapidly. WFC will directly participate in the housing recovery through its mortgage book and improving loan loss provisions. WFC trades at a discount to its book value. We believe it should trade at 1.5 x BV.
Vidéotron Ltée 7.125 per cent, 1/15/2020
The high-yield debt is wholly owned by Quebecor Inc. Avenue believes the bonds still have value, yielding around 5.5 per cent. Videotron is the main cable operator in Quebec and has substantial free cash flow. The stability of the company and its consistent earnings profile allow a Videotron debt holder to obtain a high yield without the volatility of owning the parent company Quebecor.
Bell Aliant Inc.
Bell Aliant is the one of the largest telecom providers in the Atlantic area, and rural markets in Ontario and Quebec. The company pays a high dividend and generates substantial free cash flow. Although the dividend policy is questionable, we believe that their fibre buildup will attract new clients and increase market share.
Past picks: Nov. 16, 2011
Yellow Media Inc. 7.30 per cent, 02/02/2015
Total return: +55.00 per cent
Mainstreet Equity Corp.
Total return: +65.47 per cent
Sherritt International Corp. 8 per cent, 11/15/2018
TR: +14.00 per cent
Total return average: +44.82 per cent
The stock markets of the world are cheap on absolute and relative terms. On the other hand, we think the bond market is expensive. We believe that in the near and medium term the equity market will outperform the bond market. As well, companies with sustainable balance sheets and low leverage that can consistently produce distributions will continue to be highly desirable in this low interest rate environment. We will continue to see stable and growing profit growth from the U.S. and its underlying diversified economy.