John O'Connell is chairman and CEO of Davis Rea Ltd. His focus is North American large caps.
Tourmaline Oil Corp.
Tourmaline is a rapidly growing oil and gas company with an exceptionally strong management team that continues to develop a very large low cost liquids-rich natural gas play and a highly profitable emerging oil play. Cash flow growth and production growth should continue to be over 40 per cent.
Intel continues to demonstrate that its $14-billion (U.S.) R&D budget will maintain it as a formidable competitor with an increasingly diversified portfolio of rapidly growing services and products. We feel that investors penalize a company that has traditionally been not only a fierce competitor but also a world class innovator. Its 4-per-cent dividend yield more than adequately compensates investors while they wait for profit growth to deliver above average returns.
Stryker is a well-managed global provider of medical devices that has a history of growing its earnings and dividends. Its valuation is trading at a discount to its historical levels and we feel does not accurately reflect its global reach and potential. Its dividend yield of 1.5 per cent should grow at a very high rate as its five-year average growth rate of 25 per cent looks sustainable for the foreseeable future.
Past Picks: October 25, 2012
Nexen Inc. *Acquired by CNOOC, Feb 28, 2013
Total return: +19.61 per cent
Astral Media *Acquired by BCE, July 8, 2013
Total return: +33.03 per cent
Raging River Exploration
Total return: +105.00%
Total return average: 52.55 per cent
We expect the markets to soon regain focus on the fundamentals of earnings growth and economic expansion that seems to be gaining traction globally. Encouraging signs of economic stability in Europe and Asia coupled with a weakened U.S. dollar should allow for U.S. multinationals to once again begin to deliver revenue and earnings growth. While we feel that encouraging signs are emerging we are also cognizant that earnings growth must soon start to emerge if equities are to continue to advance and justify the expansion in PE multiples that have driven recent returns.
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