Patrick Horan is a principal at Agilith Capital. His focus is on North American equities.
Top Picks:
IGM Financial (IGM TSX)
The stock has a 4.4-per-cent dividend yield, almost double the TSX. IGM's business has excellent margins and is trading at 13.4x forward earnings which is about an 8-per-cent discount to its historic price-to-earnings multiple. As investors continue to shift toward higher margin product, IGM should enjoy excess multi-year growth. There is some concern that increased disclosure on investor statements could stunt growth, but we believe IGM is well-positioned from a sales and distribution perspective to withstand any disruption.
Avigilon (AVO TSX)
The stock is down by almost 50 per cent from its high in January. We are seeing excellent value relative to its growth rates. Specifically, earnings growth is expected to be 40-50 per cent over the next year and the earnings multiple is closer to 17x EPS (in line with the market). The company has a unique end-to-end HD surveillance product and is embarking on video analytics software and systems that could drive the next leg of growth. It also benefits from a declining Canadian dollar.
JPMorgan Chase & Co. (JPM NYSE)
We believe that a steepening yield curve over the next 3-5 years will be positive for U.S. bank earnings growth and that this is not reflected in current multiples. Excess capital will be deployed towards share buybacks and dividend growth. We like JPMorgan's exposure to the growing M&A and capital markets cycle and we also like the improved credit profile of the U.S. consumer after 5 years of increasing savings and repairing balance sheets.
Past Picks: October 1, 2013
Bombardier Inc. (BBD.B TSX)
Then: $4.83; Now: $3.74 -22.57%; Total return: -20.55%
Sandvine Corp. (SVC TSX)
Then: $2.16; Now: $2.84 +31.48%; Total return: +31.48%
TD Ameritrade (AMTD NYSE)
Then: $26.57; Now: $33.43 +25.82%; Total return: +30.04%
Total return average: +13.66%
Market outlook:
We continue to believe that we are in a secular bull market that started in 2009. We think we are approaching a good buying opportunity from the perspective of seasonal flows. One thing that has changed from the beginning of the year is that we are seeing reaffirmation of U.S. leadership in economic growth and markets, so investors need to be careful about what they buy as not all ships will rise. We think investors should have a diversified U.S. basket of investments and that Canadian investments should be focused on companies with positive leverage to a strengthening U.S. dollar. Specifically, we like the manufacturing and technology sectors.