Skip to main content
bnn market call

Gajan Kulasingam is senior portfolio manager, Sentry Investments. His focus is on industrials, utilities and energy infrastructure.

Top Picks:

Veresen Inc. (VSN-TSX)

The new CEO has done a great job in reshaping the business and balancing a high dividend/payout business model with strong growth pipeline. Several key catalysts are coming later in 2015 including announcements for Jordan Cove. Alliance re-contracting is much better than was initially thought 2 years ago. Recently, the company has done nice creative deals (Ruby pipeline, Encana/KKR Deal). As well, the dividend is high, but sustainable. Shareholders get paid to wait, with significant upside from Jordan Cove.

Williams Cos. (WMB-NYSE)

Williams is one of the largest and most diversified MLPs in the U.S. with a strong footprint in the high production northeast regions via access to the Marcellus and Utica plays. It has an exceptional management team with a proven track record of shareholder value creation (spin off of oil & gas segment, merger with ACMP). Rebased guidance is prudent and conservative with 10 to 15-per-cent dividend growth based on current commodity strip. There is an upside to that if and when commodity prices recover.

Union Pacific Corp. (UNP-NYSE)

The company boasts strong pricing growth that likely exceeds its peers. It is a diversified franchise and great network operator with a compelling productivity opportunity that can drive margin growth and an under-levered balance sheet vs. peers which equals upside to buybacks and dividends. It should be able to deliver double-digit EPS growth primarily from price increases rather than volume. Union Pacific currently trades at a discount to the broader market, where it historically has traded at a premium. So essentially you're getting a business at a 5-per-cent discount that's of higher quality than the broader market, has significant asset/scarcity value and will deliver double-digit EPS growth whereas the S&P might be flat or slightly negative depending on how the U.S. dollar and commodities play out.

Past Picks: July 15, 2014

Danaher Corp. (DHR-NYSE)

Then: $78.24; Now: $85.01 +8.65%; Total return: +9.09%

Comcast Corp. (CMCSA-Nasdaq)

Then: $54.89; Now: $56.54 +3.01%; Total return: +4.31%

Quanta Services (PWR-NYSE)

Then: $34.88 Now: $28.50 -18.29% Total return: -18.29%

Total return average: -1.63%

Market outlook:

Expect 2015 to be a year of higher volatility and more muted returns. A strengthening U.S. dollar, sluggish economy, deteriorating earnings momentum and modestly elevated valuations all represent headwinds to the market. The offset to this is a still patient and flexible Federal Reserve. While the exact date of an interest rate hike is contentiously debated, what's more important is the glide path of future rate hikes.

Utility sector valuations did pull back in February/March, but I still think there's some risk to the sector going into a rising interest rate environment. Investors need to be cautious when getting exposure to utilities. Look for businesses with above-average organic growth, ability to do M&A, and multiple levers for value creation.

Expect economically sensitive businesses (short cycle industrials and transportation assets) to outperform in a market driven by improving economies. Midstream/energy infrastructure companies should also perform well supported by stable business models that produce recurring cash flows with declining commodity sensitivity, and stabilization of commodity prices in the second half of the year.

Interact with The Globe