Bruce Campbell is president and portfolio manager of Campbell, Lee & Ross Investment Management. His focus is Canadian large caps.
Whirlpool is the leading appliance manufacturer in the world. The company's $19-billion (U.S.) in revenues in the U.S. last year represented a 40- to 45-per-cent market share. Our investment thesis is based on two trends. First is the aging appliance base (replacement cycle) – the number of appliances within 3 years of their usable life in the U.S. increased from 122.7 million in 2012 to 130.1 million in 2013 compared to industry shipments of 39.9 million. The second trend is U.S. housing – 2013 was the first year since 2008 when purchased appliance volumes exceeded the number purchased 10 or 15 years earlier. In English, 2013 was the first time since 2008 that housing made a positive contribution to demand. If you apply a 15x multiple to a blended 2014/15 earnings number, it would produce a $200 target.
Cenovus Energy Inc.
Cenovus has had some production problems at its Foster Creek area where more steam is required to produce oil but we believe that the bottom is about now, and improved results are coming in the second half of this year. Longer-term, they have good growth and excellent project economics. They can play catch-up on the returns this year as they fix the problems and the stock will outperform. Our one-year target is $33.
Manulife Financial Corp.
They benefit from higher rates on their insurance spread side, have excellent growth in wealth management in Asia and core earnings growth of 15 per cent. We may see a dividend increase but not until the end of this year or early next. Our one year target is $24.
Past Picks: March 26, 2013
Bank of Nova Scotia
Then: $59.57; Now: $65.02; Total return: +13.68%
Morguard North American Residential REIT
Then: $11.20; Now: $9.87; Total return: -6.83%
Then: $24.14; Now: $28.81; Total return: +22.12%
Total return average: +9.66%
Canada dominated the U.S. in both hockey and curling while the Canadian equity markets have been dominating their U.S. counterparts as the TSX is up almost 6 per cent year-to-date while the U.S. equity markets are up but only marginally. In February, the TSX was off 200 points on the first day of trading but followed that drop with twelve consecutive days of positive returns. In fact, there were only 19 trading days in the month but the TSX was up a very healthy 14 of them. It would make sense for a pause at some point but there is still enough money on the sidelines waiting to enter and good fundamentals (adjusted for weather) which means that equity markets should end the year higher from here, albeit not in a straight line upwards.