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Keith Richards.
Keith Richards.

BNN Market Call

Three top stock picks from ValueTrend’s Keith Richards Add to ...

Keith Richards is portfolio manager at ValueTrend Wealth Management of Worldsource Securities. His focus is technical analysis.

Top Picks:

CGI Group Inc.

Still own it. We bought a half-position size at $37 in December, then bought another half-position in February at $36. We view this as an opportunistic play that is in a long termed uptrend. The stock sold off on losing the Obamacare contract – which represented a pretty insignificant chunk of their revenue to begin with. The company is positioned to benefit from its expansion into Europe. You will have to be a bit patient on this as the stock shrugs off its negative sentiment, but it’s a well run company with a great long termed chart.

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Brookfield Infrastructure Partners

I have recommended this stock on BNN several times, and like to do so every time the stock pulls back. Well, here we go again. The stock is coming back to its longer termed trendline at this time. This stock is a no-brainer. Buy it on a pullback. Collect a 5+ per cent dividend, and enjoy a superior management team in a sector that makes sense. BIP holds infrastructure assets in power generation, toll roads, and even has an ownership in the Australian railway. I’ve owned this stock for a few years – originally paying $26 in 2011.

Keyera Corp.

We love the pipeline sector, and have been a bit overweight pipelines since buying into their selloff last fall. The trend line didn’t break on that pullback, and it remains strong. Keyera has new projects coming online in the next 18-24 months. The stock may no longer be a “bargain” from a valuations, but the new projects will lead into new revenue, and potentially higher dividends down the road. This stock pays about 4-per-cent dividend yield currently. We view this sector as part of our “Infrastructure” play – just as BIP.UN is.

Past Picks: January 28, 2014

iShares S&P/ TSX SmallCap Index Fund

Still own it. Have owned it since last fall, originally bought at $14.90. Originally, this ETF broke its downtrend, based, and broke out of the base at around $14 – shortly after which we bought it. The small caps on both sides of the border can move well into the spring from a seasonal perspective. I plan on selling in the next month or so.

Then: $15.68; Now: $16.54; Total return: +5.48%

Microsoft Corp.

Still own it. We originally bought a half-position in December around $36 (U.S.) – we bought the other half a few weeks ago when the market pulled back in February around $37. We view this as a 3+ year hold. The stock broke out from a long termed ceiling that contained it below $34 since 2000. Such a long termed breakout is extremely bullish, and the catalyst of a new CEO who has an objective of returning the company to its roots in innovation is exciting.

Then: $36.27; Now: $37.96; Total return: +5.44%

CGI Group Inc.

(See commentary in Top Picks, above)

Then: $35.23; Now: $35.19; Total return: -0.13%

Total return average: +3.60%

Market outlook:

Some of my research involves sentiment indicators, which measure the level of bullish or bearish behaviour by two distinct groups of investors. One group, who we sometimes refer to as the “smart money”, consists of more sophisticated investors. This group, who tend to be fairly accurate when assessing where and when to invest, include large institutional trades such as pension managers and corporate insiders. The other group, who we like to refer to a “dumb money”, consists of less sophisticated investors. Mutual fund buyers, small-dollar retail traders and small speculators tend to be more often wrong than right when assessing where and when to invest.

There are many ways of quantifiably tracking both of these groups, including:

  • the AAII Survey (American Association of Individual Investors), which tracks bullish vs. bearish sentiment by retail investors (dumb money)
  • Small speculators and odd lot trades (dumb money)
  • insider trading activity tracked by the major exchanges, which tracks buying and selling activity by corporate insiders (smart money)
  • the U.S. Rydex group of mutual funds, who publicly report flows in and out of their mutual funds (dumb money).
  • Commercial hedgers can be followed with a subscription to – these large pensions and corporate hedgers are usually more accurate in their market view (smart money)

Research that I follow shows a fairly high level of “dumb money” optimism on the stock market right now. While these levels are not at extremely dangerous levels, they are building as retail investors continue to play the recent bull market. Overall, I look for high dumb money confidence coinciding with low levels of smart money confidence—we’re not quite at extreme levels of either of these indicators yet, but we’re getting there. All of these indicators can be followed at www.sentimentrader.com. Adding these factors to my usual seasonal discipline to “Sell in May & go away”, we at ValueTrend expect to continue playing this bull for a while longer, but expect we will reduce our equity exposure leading into the summer. We’re still fully invested at this time. My sell point for U.S. stocks probably won’t be until some time in April – but I’ve noted a tendency for Canadian markets to peak about a month prior to U.S. stocks over the past few years. Thus, I may begin reducing Canadian equity at the end of March or beginning of April. I’ll be playing that by ear. Note that I reduce, but don’t eliminate my market exposure in the summer. It is likely that I will remain 75-80-per-cent invested at the point of maximum cash.

Interestingly, markets tend to experience greater than normal 4th quarter returns after Q2 or Q3 pullbacks, should one occur. So the trick will be to buy stocks later in the summer or fall with our cash holdings in anticipation of a strong finish to the year

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  • GIB.A-T
  • BIP.UN-T
  • KEY-T
  • XCS-T
  • MSFT-Q
Live Discussion of GIB.A on StockTwits
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