Norman Levine is managing director at Portfolio Management Corp. His focus is on North American large caps.
Teck Resources Ltd.
Teck is financially strong after its near-death experience in 2008. It is diversified with respect to its major commodities (coking coal, copper and zinc) and has mines throughout the Americas. It has a safe dividend yielding 3.6 per cent and no major debt maturities until 2017. There is excessive pessimism surrounding its major commodities but we believe the China slowdown is well incorporated into its share price. It is a major beneficiary of the decline of the Canadian dollar. The stock has underperformed for the last 3 years. The timing on purchase is difficult and the malaise could continue but commodities will not underperform forever. Eventually, the solution to low prices is low prices and Teck is a low-cost producer so it will be a survivor and winner.
Callaway is a turnaround story in the golf equipment business. CEO Chip Brewer (ex-CEO of Adams Golf) is making major changes in Callaway’s product offering, manufacturing footprint, and balance sheet. Turnarounds take time but we believe he is doing the right things. On February 14, the company is re-launching the Big Bertha line of drivers and woods. This is the biggest news in golf equipment in years. The latest quarter (the least important of the year) was basically inline but the market was disappointed with forward guidance. We believe the CEO is deliberately under-promising and hoping to over-deliver as the year unfolds and would take advantage of the recent share weakness.
Essential Energy Services
Essential provides oilfield services for servicing producing wells and new drilling activity to oil and gas producers, predominantly in Western Canada. The company operates in two segments, Well Servicing, and Downhole Tools and Rentals. We believe that even with the recent addition of new equipment, Essential’s utilization levels and overall revenue will trend higher year-over-year in 2014. The company’s deep coil tubing market remains hot and Essential has good leverage to the expected LNG build out in Western Canada. It has a yield of around 5.0 per cent and a recent sum of the parts valuation of $3.60 shows there is lots of upside potential in the stock.
Past Picks: January 31, 2013
Badger Daylighting *Stock Split 3 for 1 - 1/28/2014
Then: $34.15; Now: $32.60; Total return: +192.09%
Sun Life Financial
Then: $29.10; Now: $36.66; Total return: +29.64%
Then: €9.05; Now: €11.73; Total return: +39.34%
Total return average: +87.02%
The long-awaited and much-needed market correction has finally arrived. We had trouble finding new ideas as we thought valuations were stretched after the great run in stocks the last few years (mostly outside of Canada). A combination of overvaluation, deferred capital gains selling, economic uncertainty, and emerging market unease have all contributed to the correction. While we have no idea how far and how long the correction may last, we are busy putting together a list of stocks to buy at these lower levels, especially in the better quality emerging market economies in Asia.