Stephen Takacsy is chief investment officer and portfolio manager at Lester Asset Management. His focus is on Canadian equities.
BCE stock has come off a lot lately and is paying a 5.4-per-cent dividend. The telecommunications sector is in the sweet spot for growing data consumption, and BCE, like Telus, is playing catch-up to Rogers in the wireless sector in term of smart phone penetration and average revenue per user (ARPU). BCE is also growing its presence in the cable TV sector with its IPTV-based Fibe service. Finally, BCE owns valuable media properties including CTV, Maple Leaf Sports and soon some Astral assets (we expect revised deal to be approved by the CRTC). Last purchased at just over $43. We own it in all our accounts.
Andrew Peller Ltd.
Canada’s largest Canadian-owed wine producer and marketer owns several vineyards on Ontario and BC, and valuable retail distribution in Ontario. It also owns redundant real estate in B.C. worth around $2 per share above book value. The company pays a 3.3-per-cent dividend which is growing annually and trades at a very cheap P/E multiple of around 10X earnings. The stock is worth around $20 on a sale to an international player. Last purchased at just over $12. We own it in all our accounts.
Innergex Renewable Energy Inc.
The company is now a “beaten-up” renewable energy company paying a 6.7-per-cent dividend and expected to double it's power generating capacity (most hydro) over the next several years (and likewise increase it's dividend), which is more “topical” given the vicious correction we've just had in the high yield sectors. Innergex is safest of the renewable energy companies with mostly hydro-electric plants in Canada under very long term contracts and also insured for business interruption. It yields a 6.7-per-cent dividend and is expected to double its power generating capacity over the next several years (many new projects in development and many projects to bid on). We also expect a dividend increase next year. Price/quality it is the best value out there of the dividend payers (Boralex is still the one with the most upside since it doesn't pay a dividend yet).
Past Picks: May 16, 2013
Total return: -5.71 per cent
Shoppers Drug Mart
Total return: +4.83 per cent
Total return: +5.68 per cent
Total return average: +1.60 per cent
Artificially-suppressed ultra-low interest rates and an overvalued bond market were encouraging investors to put more and more into the stock market. After a strong rise during which world markets were anticipating too optimistic a scenario in relation to anemic and fragile global economic growth, markets have found an excuse to correct. The reality is that Europe is sinking deeper into recession with growing indebtedness and growing unemployment, China is slowing down which is having a huge impact on commodities, and Japan is waging an all-out war on deflation and devaluing its currency to spur exports which will only have a short term effect. The U.S. is the best of a bad lot and its recovery continues to be very gradual, which is surprising given the trillions in monetary stimulus that the Federal Reserve has flooded the financial system with since 2008. The U.S. economy also faces headwinds from budget cuts and tax increases, and the U.S. debt continues to balloon. So, when Fed chairman Ben Bernanke announced that he will slow down the bond buying and even cease it completely by next year, the market is correct to react negatively. It’s not just a question of high-yield stocks adjusting to higher rates, but the market is also questioning whether or not Bernanke is withdrawing the financial heroin (which has given U.S. markets new highs) too early. If the U.S. economy is truly humming along and justifies removal of stimulus, then the U.S. stock market should continue its ascent. Nevertheless, Bernanke needs to prep the market years in advance about reducing the dosage of quantitative easing so as not cause a shock to the system.
So we feel that Canada is still a safe haven with solid employment levels, a strong currency and sound finances. Because the global economic outlook is still weak, we think that interest rates will stay low for the foreseeable future. Therefore, stick with solid Canadian companies that are growing their dividends for yield and safety (Telecom, Energy Infrastructure, Renewable Energy and Power), and some Canadian small to mid-caps for growth. However, it’s more and more of a stock picker’s market and you need to be careful in what you invest. Continue to avoid resources and financials.
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