Mike Newton is portfolio manager and director, The Newton Group, ScotiaMcLeod. His focus is North American large caps and ETFs.
Top Picks:
Wynn Resorts (WYNN-Nasdaq)
Wynn Resorts is the premier luxury casino brand in Macau and achieves 70 per cent of its revenue from the region. With significant barriers to entry, it is unlikely that any more competitors will be able to enter. Macau is within a five-hour flight of 2.2 billion people – nearly a third of the world's population. Macau gaming revenue slumped in 2014 and shares have slumped accordingly. Total gaming revenue in Macau was $44-billion (U.S.) in 2014, marking a decline of 2.6 per cent year-over-year, highlighted by a drastic 30.4-per-cent decline in December. Many analysts see a rebound in gaming revenues but not until the second half of 2015 – so patience will be required. With a 4.5-per-cent dividend, and a propensity to dole out special dividends, WYNN represents a potentially interesting total return story.
Chicago Bridge & Iron Co. (CBI-NYSE)
My recommendation on Chicago Bridge & Iron is based predominately on valuation. After a 55-per-cent sell-off, the shares may be attractive. Valuations have discounted down to a more onerous scenario than is likely to emerge over the full year. Downstream liquefied natural gas, petrochemicals and gas processing investments (which are the majority of CBI's revenue) have a less significant or inverse relationship with crude prices. Higher-risk investments such as upstream oil, offshore oil and oil sands development make up a relatively smaller part of CBI's earnings. CBI is currently trading at only 7.3X next year's expected EPS. A small position is advisable given the continued dramatic and rapid change in the energy space.
First Asset Morningstar Canadian Value Index ETF (FXM-TSX)
A slightly out-of-favour style in an out-of-favour Canadian market. Given the rapid rise in the U.S. dollar versus the Canadian dollar, some investors need a growth choice for domestic money and this just might be it. This 30 stock ETF is comprised of liquid equity securities of Canadian companies utilizing the proprietary CPMS methodologies from Morningstar to screen for undervalued Canadian companies. As an added feature, holdings must pass a liquidity screen. This ETF has much better diversification than the S&P/TSX composite (for example energy is weighted at a mere 7 per cent vs. 22 per cent for the index. And financials are 17 per cent vs. 36 per cent for the index.)
Past Picks: February 6, 2014
Starbucks Corp. (SBUX-Nasdaq)
Then: $72.36; Now: $88.34 +22.08%; Total return: +23.46%
Boeing Co. (BA-NYSE)
Then: $122.67; Now: $132.48 +8.00%; Total return: +10.54%
Alimentation Couche-Tard (ATD.B-TSX) Stock Split: April 23, 2014: 3 for 1
Then: $81.74; Now: $47.57 +74.59%; Total return: +75.43%
Total return average: +36.48%
Market outlook:
Markets have come out of the gate in 2015 like a broken New Year's resolution. I continue to favour the U.S. over Canada, but the outsized currency gains Canadian investors have earned are slowly losing their benefit. The Bank of Canada's surprise interest rate cut confirms concerns of a slowing Canadian economy and continues to put Canadian investors in a position of equally conclusive alternatives, further destabilizing confidence. The best strategy is to continue to diversify between both currencies, placing investments in strong stocks and utilizing stop losses to mitigate risk.