Gavin Graham is president of Graham Investment Strategy Ltd. His focus is on global equities and North American large caps.
Top Picks:
Bank of Nova Scotia
Scotiabank is the most geographically diversified of the Canadian banks with over one-third of its earnings coming from its operations in Mexico, the Caribbean, South America and Asia. It also has the lowest expense ratio amongst the major banks, and no direct exposure to the U.S. consumer sector. It recently purchased a 51 per cent stake in the fifth largest bank in Colombia for $1-billion and has raised its dividend by 6 per cent in the last year, the first increase since 2008, to give a yield of 4 per cent.
Diageo
Diageo is the largest spirits company in the world, owning such well-known brands as Johnnie Walker scotch, Crown Royal whisky, Smirnoff vodka, Captain Morgan rum, Gordon's gin and Guinness beer, distributing Jose Cuervo tequila and also owning a 34 per cent stake in the French luxury goods and spirits company, Louis Vuitton-Moet Hennessy. Scotch accounts for 27 per cent of its sales, beer 22 per cent and vodka 11 per cent and it derives one-third of its sales from emerging markets. In the year ending June 30th, 2011, it grew net sales and operating profit 5 per cent and raised its dividend 6 per cent, giving it a yield of 3 per cent.
Energold Drilling
Energold Drilling is a specialty drilling company with 126 mineral drilling rigs, with the majority of its revenues from the gold sector, although it also manufactures drilling rigs and has recently bought an oil and gas drilling business. Its revenues and earnings are up sharply over the last year, with record revenues of $98-million vs. $37.3-million for the nine months to Sept. 30th, 2011, with net earnings of $13.7-million (0.34 per share) vs. $0.8 million ($0.02) over the same period in 2010.
Past Picks: February 7, 2011
Goldcorp
Then: $40.80 Now: $46.08
Total return: +13.82%
H&R REIT
Then: $20.63 Now: $23.24
Total return: +17.97%
Petrobras
Then: $36.85 Now: $28.39
Total return: -19.71%
TOTAL RETURN AVERAGE: +4.03%
Outlook:
The sharp rebound in stock markets to start the year was based on increased optimism about growth in the U.S., China beginning to loosen its monetary conditions and hopes of a resolution to the European debt crisis. Now that the continued scale of the budget problems in some European countries is becoming apparent to investors, doubts are emerging, and the weakness of the Euro indicates that flight to safety flows are continuing into the US. Slowing earnings growth is also a concern, but well-established companies with strong balance sheets and profitability should outperform in uncertain markets as well as providing superior yields to government bonds either through dividends or interest on their corporate debt.
Compiled by Franklin Cameron/BNN Market Call Tonight
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