Paul Gardner is partner and portfolio manager at Avenue Investment Management. His focus is large-cap dividend-paying stocks, REITs and fixed income.
Top Picks:
Boardwalk REIT (BEI.UN-TSX)
Shares are off 15 per cent from the high. A combination of extremely low interest rates, net migration continuing into Alberta and very low vacancy rates will allow Boardwalk to continue to increase its AFFO. The "oil story" will have a perceptional impact to the REIT price, but over the long term, Boardwalk will only be marginally affected by low oil prices.
Tricon Capital (TCN-TSX)
The company owns single home rental communities in the southern and western United States. The company is benefiting from the U.S. housing recovery. The stock valuation trades at a 10 to 15-per-cent discount to NAV. The recent depreciation of the Canadian dollar will help the valuation of the stock due to its large exposure to U.S. assets.
Sirius XM Canada (XSR-TSX)
Its recent share price weakness does not justify its stable and growing business. The dividend yield is over 7 per cent while the company generates considerable free cash flow. The company will benefit from its recent push into the used car market. Sirius U.S. increased its guidance on subscribers, which should benefit Sirius XM Canada in the medium term as Canada lags by two years. Churn rates are elevated due to the new royalty fee that is now incorporated into its monthly pay. This will have a short-term negative affect on the company's growth plans.
Past Picks: February 11, 2014
Leon's Furniture (LNF-TSX)
Then: $14.93; Now: $19.16 +28.33%; Total return: +31.75%
Mainstreet Equity (MEQ-TSX)
Then: $36.54; Now: $33.50 -8.32%; Total return: -8.32%
Timbercreek Mortgage (TMC-TSX)
Then: $9.17; Now: $8.37 -8.72%; Total return: -1.52%
Total return average: +7.30%
Market outlook:
Volatility will continue in both the stock and bond markets this year. Due to lower commodity prices, Canadian markets are now being "washed out". Over time, the Canadian market will become "cheap" relative to the U.S. markets and there will be a time to buy. We believe this should happen over the next few quarters. Both North American economies are growing and are leading globally. Europe continues to pose a problem with growth and deflation. Interest rates will stay historically low for the foreseeable future, although we feel that rates will readjust higher due to the Fed hikes in the summer of this year. Oversupply of oil will be corrected by fall 2015.