Gavin Graham is president of Graham Investment Strategy Ltd. His focus is on global equities and North American large caps.
Top Picks:
Corus
Corus is the last remaining specialist Canadian TV and radio company after the takeover of Astral by BCE, with particular strengths in children's (Teletoon, Treehouse, YTV) and women's (W, Oprah Winfrey Network) TV. With its recent consolidation of its Toronto facilities in its new Corus Quay HQ and the subsequent sale and leaseback of Corus Quay to H&R REIT, Corus has completed a major capex program while cutting running expenses and should see higher growth in its earnings and dividends from the present 4.1% yield over the next few years, even if the Shaw family, its controlling shareholders, do not decide to take it private.
Allied Properties REIT
Allied Properties is the leading specialty office property REIT, with over 100 former industrial buildings valued at $2.1-billion converted into "brick and beam" offices primarily around Toronto's downtown core, at rentals often up to 50% lower than traditional office space. It had expanded geographically into Montreal and Winnipeg, and in the last 18 months the western provinces, while its buildings are well suited for data centres. Following the re-leasing of its major Montreal office complex last year, it should enjoy growth in AFFO and potentially dividends over the next 2 years, while despite its strong price performance and premium to NAV, the defensive nature of its office space and its relatively conservative payout ratio provide some downside protection and a 4.7% yield.
Goldcorp
Goldcorp is the second largest gold miner in North America and the lowest cost producer, due to its long life Red lake complex in Ontario. Despite recent disappointing grades at some sectors of Red Lake, the company is anticipating 2.6 million ounces of gold production this year and steady growth over the next few years as new projects such as Pueblo Viejo in the Dominican Republic (93% complete and due on stream in mid 2012) and Cerro Negro in Argentina (second half 2013) come into operation. With production costs per ounces of gold at $251 (U.S.), after by-product credits, Goldcorp remains highly profitable and will see growth in output and earnings over the next few years regardless of where the price of gold is trading. It also yields 1.5%.
Past Picks: May 20, 2011
Bank of Nova Scotia
Then: $58.49
Now: $50.62
Total return: -10.03%
Conoco Phillips
Then: $55.74
Now: $52.28
Total return: -1.67%
Dollarama
Then: $31.48
Now: $55.31
Total return: +77.33%
Total Return Average: +21.88%
MARKET OUTLOOK
The continuing euro zone debt crisis has led to equity markets giving up all of their first-quarter gains, as the realization sinks in that Greece will most likely leave the euro zone, either in an orderly or disorderly fashion. The after-effects of such a departure will lead to continued selling pressure on European financial institutions, as investors worry about damage to their balance sheets from exposure to European sovereign debt. Meanwhile, the recession in Europe and the slowdown in China, with the associated pressure on commodity prices, have led to the selling of Canadian risk assets, whether equities or the currency, while money pours into the perceived safe haven of government bonds, both in Canada and in the U.S., U.K., Germany and Japan. The real returns from 10-year bonds yielding 1.0% to 1.7% over the next decade will be negative, making good quality blue chip equities with sound balance sheets and reasonable dividends very attractive.
Compiled by Franklin Cameron/BNN Market Call Tonight
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