BNN Market Call

Three top stock picks from Leon Frazer’s Douglas Kee

Special to The Globe and Mail

Douglas Kee, Chief investment officer for Leon Frazer & Associates. (Market Call/File photo)

Douglas Kee is chief investment officer at Leon Frazer & Associates. His focus is on Canadian dividend-paying stocks.

Top picks:

Bank of Nova Scotia

Bank of Nova Scotia is our favourite bank at this time based upon market performance and growth prospects. Canadian banking has been buoyed by the ING acquisition and a stable credit experience. BNS has expanded aggressively in global wealth management, a higher-margin business, and continues to do well in international banking. The bank has increased its dividend 5 per cent this year and we expect another increase by year end.

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Cenovus Energy

Cenovus is one of Canada’s biggest steam-assisted gravity drainage (SAGD) oil producers with high quality, long term assets and low cost of production. Q2 earnings were disappointing due to a number of onetime charges and temporarily higher production costs. Cenovus has some production hedged and participates in the downstream through a refinery joint venture. CVE currently yields 3.3 per cent and has a good production growth profile which should result in good dividend growth over the next few years.

Pembina Pipeline

We continue to believe the supply/demand fundamentals for energy are very constructive. An attractive way to participate is through energy infrastructure companies such as Pembina who transport, manufacture and store energy. PPL currently yields 5.3 per cent and through various growth projects we see Pembina growing its dividend by 5 per cent plus per year.

Past Picks: May 24, 2012

Talisman Energy
Then: $10.36
Now: $11.09
Total return: +10.19 per cent

Rogers Communications
Then: $36.15
Now: $42.45
Total return: +23.21 per cent

Goldcorp
Then: $38.38
Now: $32.23
Total return: -14.37 per cent

Total return average: +6.34 per cent

Market outlook:

Given an improving but historically slower growth global economy, we believe that the Canadian equity market will remain range-bound (11,500 to 13,500) in the medium term. We feel the traditional impulse to sell telecom, pipes and utilities as interest rates rise from very low levels may be an overreaction. An aging population will require current and growing income to meet retirement needs. Dividend growth stocks should remain in favour.

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