Norman Levine is the managing director at Portfolio Management Corp. His focus is on North American large caps.Fred Lum/The Globe and Mail
Norman Levine is managing director at Portfolio Management Corp. His focus is North American large caps.
Top Picks:
General Electric (GE.N)
We have owned this stock for quite a number of years and continue to buy it at current prices for new clients.
GE is in the midst of transforming itself from a conglomerate with a major portion of its revenues and earnings from financial services into an industrial products company with a small financial services division. We believe GE will be a better and more focused company and that industrial companies are awarded higher valuations than financial companies, so shareholders will benefit in the long run. While we are near the end of that transformation, investors have only partly bought into the "new" GE, so there is a good buying opportunity. Investors are being rewarded with a current yield of 3.00 per cent, and GE's dividend should grow on a regular basis.
Canadian National Railway (CNR.TO)
We have owned this stock for quite a number of years and continue to buy it at current prices for new clients. CNR has been our favourite railway in North America for some time, as it continues to be the best-run and most profitable on the continent. It has less exposure to commodities than most of its competitors and more exposure to manufactured goods as well, and we like its north-south connection linking the U.S. and Canada to Mexico. We also like that it has already solved the "Chicago problem" that Hunter Harrison of CP is so desperate to fix. CNR currently yields 1.9 per cent after recently increasing its dividend, and its dividend growth rate is accelerating.
Suncor (SU.TO)
We first bought the stock when it was Petro-Canada and continue to buy it at current prices for new clients. Suncor is Canada's largest energy company. Its shares, like all other energy companies, were hit by the massive decline in oil prices. However, because of its relatively low cost of production, its refining and marketing divisions (which actually benefit from declining oil prices as margins increase), and its relatively solid balance sheet, we think this is one energy company to own through the current turbulence. It's recent purchase of Canadian Oil Sands has stretched its balance sheet some, but, due to the enormous cash Suncor generates, we believe its current dividend (yielding 3.25 per cent) is safe – unlike most of its peers. Keep in mind that no cyclical dividend is as safe as those of non-cyclical stocks. We think the stock will be higher a year out as long as oil prices do not move much lower for a prolonged period of time .
Past Picks: March 20, 2015
Callaway Golf (ELY.N)
Then: $8.58 Now: $9.02 +5.13% Total return: +5.58%
SNC-Lavalin (SNC.TO)
Then: $40.82 Now: $46.82 +14.70% Total return: +17.42%
CCL Industries (CCLb.TO)
Then: $136.05 Now: $228.21 +67.74% Total return: +69.18%
Total Return Average: +30.73%
Market outlook:
Since my last appearance on BNN Market Call, stocks, commodities, and the Canadian dollar have all had a remarkable turnaround and recovery. The question is whether or not these moves are sustainable, or if they are what is known as a bull trap. The answer remains to be seen.
Our belief remains that the U.S. economy continues to grow at a moderate and increasing rate. The Federal Reserve continues to be behind the curve and last week fanned the flames again by indicating it intends to keep interest rates lower for longer. The effect is that speculative money continues to flow into stocks.
The Canadian economy has stalled due to sharply lower commodity prices. All, however, is not lost as manufacturing is finally starting to pick up some of the slack due largely to the lower loonie. Large regional disparities will remain for some time.
Currently, what worked last year in stocks is not working this year and vise versa. We continue to carry a larger-than-normal cash position as we find valuations, particularly in the U.S., to be stretched. We are eager, however, to spend some of that cash on any reasonable market pullback as we remain long-term positive on stocks.
There are two kinds of losses: absolute losses attributed to a decline in value and opportunity losses where you give up potential profits. We are in the business of protecting our clients' assets. Therefore we are willing to have some opportunity losses in the mining and energy area until we are sure a sustained turnaround in prices is in place. We are not there yet.