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3 top stock picks from Davis Rea’s John O’Connell

John O’Connell.

Tibor Kolley/The Globe and Mail

John O'Connell is CEO and portfolio manager at Davis Rea Ltd. His focus is on North American large caps.

Top picks:

AltaGas Ltd.
Alta is a high-yielding well-run company that has had numerous years of dividend growth in a highly stable and defensive industry. The company has recently diversified its revenue stream to include U.S. gas utility businesses which nicely augments its power generation assets that will soon come on stream in British Columbia. It presently yields 4.9 per cent monthly.

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Morguard North American Residential REIT
This is a multi-residential investment trust with a focus of investing increasingly in the depressed U.S. market where rents are firming and prices are depressed. Management owns 55 per cent of the REIT and has an outstanding track record of creating shareholder value. The REIT yields 5.4 per cent and we expect a dividend hike soon.

Kinross Gold Corp.
Kinross is yielding 2 per cent and trading at a discount to its net asset value. Gold stocks have been poor-performing investments for an extended period of time. The industry is focusing less on expensive production growth in favour of pursuing profitability and dividend growth, which should reward long-term investors.

Past picks: May 11, 2012

Keyera Corp.
Then: $43.08
Now: $56.38
Total return: +36.26 per cent

Oracle Corp.
Then: $27
Now: $31.24
Total return: +16.82 per cent

AltaGas Ltd.
Then: $30.39
Now: $34.90
Total return: +19.51 per cent

Total return average: +24.20 per cent

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Market outlook: Investors are taking an optimistic outlook to the future, comforted by continued expectations of low interest rates and steady profit growth. We believe that these are reasonable assumptions and yet we are finding it increasingly difficult to find cheap investments. We believe that the current strong run of equity price appreciation is getting long in the tooth and expect a correction to develop that may give investors a better entry point for purchases.

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