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BNN MARKET CALL

Three top stock picks from Avenue Investment’s Paul Gardner Add to ...

Paul Gardner is partner and portfolio manager at Avenue Investment Management. His focus is on large-cap dividend-paying stocks, REITs and fixed income.

Top Picks:

Sirius XM Canada (XSR TSX)

Sirius XM is cheap on a EV/EBITDA valuation. Their low leverage and high free cash flow will allow for aggressive dividend growth over the next few years. The company trades at a discount to its peers and has growth potential through the used car market where they are focusing their attention beyond new cars subscribers

More Related to this Story

Bank of America (BAC NYSE)

Bank of America has had negative news recently due to capital ratio miscalculations and constant ongoing lawsuits. Although this inhibits and distracts the company’s share price, the company’s stock valuation is still very cheap at under 1 times BV. BAC will benefit from an economy that is growing above 2.5-per-cent GDP.

Timbercreek Mortgage Investment (TMC TSX)

TMC is a mortgage lender that focuses on short-term lending to apartment building developers, hospitals and other stable entities. It trades at a discount to NAV , but gives the shareholder an 8-per-cent annual return. Higher rates will help this firm over the long term.

Disclosure:

Personal

Family

Portfolio/Fund

XSR

Y

Y

Y

BAC

Y

Y

Y

TMC

Y

Y

Y

 

Past Picks: April 1, 2013

Longview Oil Corp. (LNV TSX)

PAST COMMENTARY: Although the sustainability is in question, Avenue believes the narrowing of the discount in CAD oil and higher natural gas prices will take pressure off the company’s over-distribution. It trades at 0.6X NAV , its peer group trades at 1.3X. The stock is cheap.

Then: $4.92; Now: $6.92 +40.65%; Total return: +57.27%

Leon’s Furniture (LNF TSX)

PAST COMMENTARY: The takeover of The Brick allowed the company’s footprint to double in Canada. Due to its consistent profitability and conservative balance sheet, the almost all-cash deal will be very accretive to Leon’s. Profitably will go up from 80 cents in 2013 to $1.30 in 2014. Its trades at 10x earnings; historically it has traded at 15x earnings. The cooling in the Canadian housing market will be a concern in the near future.

Then: $12.85; Now: $14.90 +15.95%; Total return: +19.39%

BTB REIT (BTB.UN TSX)

PAST COMMENTARY: This REIT has a yield of 8 per cent. The company has expanded its property base and has increased liquidity making this company “less risky”. The REIT buys properties around a 7 to 8-per-cent yield. With borrowing at 4 per cent, and a more conservative balance sheet, the company should have no trouble paying out its high distribution.

Then: $4.70; Now: $4.70 0.00%; Total return: +9.85%

Total Return Average: +28.84%

Disclosure:

Personal

Family

Portfolio/Fund

LNV

Y

Y

Y

LNF

Y

Y

Y

BTB.UN

Y

Y

Y

 

Market outlook:

Both the Canadian and U.S. economies are now growing and expanding. Company profitability has been stable and expanding in most sectors. With low interest rates, and high earnings yield, the stock markets give the investor descent risk/reward dynamics. Avenue believes the market is neither cheap nor expensive. We would expect the stock markets in North America to trade “sideways” for a while, with the upward trend still in place. Emerging market volatility will be a concern in the short term. The central banks will keep monetary policy loose for at least this year. Avenue expects rate hikes in 2015.

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