Allan Meyer
Allan Meyer is vice-president and portfolio manager at Wickham Investment Counsel. His focus is Canadian equities.
Top Picks:
DH Corp. (DH.TO)
DH is the old Davis & Henderson cheque company. The stock was originally purchased in May 2014 at a cost of $20.26 and had a yield of 6.3 per cent. The stock has appreciated so that the current yield is down to 3.1 per cent. I believe that we will see an increase in the dividend but not until the debt gets paid down from the recent acquisition of Fundtech for $1.25-billion. The shares trade with an above market yield and slightly below market multiple of earnings. Even with the acquisition, debt-to-equity is still manageable. The company has diversified into a number of bank services that give it good growth prospects. It has become a "financial services technology company".
Winpak Ltd. (WPK.TO)
Winpak is a packaging company that I expect to increase in share price in the near term. I have owned it for over 2 years. The stock has a premium earnings multiple but makes up for this with solid earnings growth, almost no debt and it has free cash flow. The share price has doubled since we bought it and now yields about 0.3 per cent. Insiders own over half of the company, which is usually a good sign.
Richelieu Hardware (RCH.TO)
We have owned this for at least 5 years. Richelieu is an importer and distributor of specialty hardware for kitchen and bathroom, not a hardware store like you might expect. The company has no net debt, a low beta of 0.37 and earnings that have steadily climbed by over 10 per cent per year. While the stock is attracting a higher price-to-earnings multiple, it looks like the share price might continue to rise in the short term.
Past Picks: May 14, 2015
Magna International (MG.TO)
Then: $67.36; Now: $70.26; +4.31%; Total return: +4.71%
Dominion Diamond (DDC.TO)
Then: $23.75; Now: $16.60; -30.11%; Total return: -30.11%
Ritchie Bros. Auctioneer (RBA.TO)
Then: $34.29; Now: $34.17; -0.35%; Total return: +0.14%
Total Return Average: -8.42%
Market outlook:
I believe that the U.S. economy will continue to move in a positive direction but at a subdued rate. We are figuring on this slow growth to be the new norm and with it slower appreciation in the stock markets. I believe that we will need to accommodate a lower rate of return from the stock market and the bond market. Near record lows in interest rate favour the stock market as an alternative to bonds. The Canadian economy faces stiff head winds from lower oil and gas prices as well as various commodity prices like copper. Previously, Alberta had been a leader in the growing economy and now it struggles with layoffs in the oil & gas fields as companies cut costs in an effort to boost profitability. The Canadian dollar has fallen further on the recent rate cut and lower oil prices. The lower Canadian dollar favours our manufacturers, but this takes time for buyers and sellers to adjust and for this benefit to be felt. We are still constructive on the stock markets in Canada and the U.S., but would advise investors to adjust their expectations down. The new norm for stock market returns could be more in the 5-7 per cent range instead of the long term average of 9-10 per cent.