Bruce Tatters is founding partner and CIO of Triumph Asset Management. His focus is North American large caps.
Top Picks:
Allergan PLC (AGN.N)
Brent Saunders manages one of the premier growth platform specialty pharmaceutical companies focusing in the area of facial aesthetics. The company has a history of value-creating transactions (acquisitions and divestitures) spanning the last several years. It recently closed its divestiture of its generics business to Teva Pharmaceuticals for nearly $40-billion (U.S.). The company is in an extremely strong position to deploy capital into a very weak pharmaceutical capital market. The company is trading at 14.9 times 2017 EPS prior to any capital deployment initiatives, which is a large discount to the markets 20x valuation.
Suncor Energy (SU.TO)
We believe oil prices have bottomed and have begun a slow process of normalizing around the $60-$70 bbl. range. Suncor went into the significant downturn in energy prices with a strong balance sheet position and was able to take advantage of the low prices through the Syncrude interest acquisitions. The strong companies who make counter-cyclical acquisitions create tremendous value for shareholders on subsequent commodity upswings. Suncor's strong emphasis on operations excellence and cost reductions during the downturn will power cash flows as oil prices recover. Most recently, the stock has been held back by the wildfire situation in Alberta, which has affected its operations. We expect the stock to recover as operations return to normal over the balance of the year. We have an intrinsic value of $50/share, which is nearly 40-per-cent higher than where the stock currently trades.
XPO Logistics (XPO.N)
XPO is a top-ten global logistics company with tremendous leverage to the growth in global freight traffic (i.e: e-commerce and other trends). The company completed a string of acquisitions in 2015 and is concentrating on integration, cost cutting, and driving synergies across its business. As we move into 2017, we expect a global improvement in freight traffic, which will accelerate the company's already strong growth. XPO is currently trading at 18.8 times 2017 EPS with a growth rate of earnings more than 70 per cent over 2016. Our 12-month target on XPO is $50, or a return of 40 per cent.
Past Picks: September 22, 2015
Apple (AAPL.O)
Then: $113.40 Now: $109.22 -3.69% Total return: -1.63%
Skyworks Solutions (SWKS.O)
Then: $86.70 Now: $70.19 -19.04% Total return: -17.72%
Allergan (AGN.N)
Then: $287.76 Now: $253.30 -11.98% Total return: -11.98%
Total Return Average: -10.44%
Market outlook:
North American markets will be strongly affected by both Federal Reserve policy action and the U. S. elections. We remain constructive on markets and believe that the recent improvement in the commodities markets is a positive sign. Weakness in corporate earnings troughed in Q2 and will rebound throughout the balance of 2016 and into 2017. Look for cyclical stocks, both industrial and commodity, to continue to outperform. Global growth expectations will recover into the second half of 2016, with the recovery in commodities and continued global central bank policy stimulus. Canadian growth should also recover as commodity prices recover (oil prices, in particular).