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bnn market call

Steve DiGregorio is a portfolio manager at Canoe Financial. His focus is Canadian dividend-paying stocks.

Top Picks:

Maple Leaf Foods (MFI-T)

MFI remains a top pick, as we see the company beginning to benefit from CAPEX spending it has done to improve plant efficiencies. We believe the company will be able to improve margins over the coming quarters. In addition, commodity inputs have dramatically fallen over the last three months. The company's balance sheet is pristine, with $300-million of cash that can be used for either stock buybacks or strategic acquisitions.

Chorus Aviation (CHR-T)

It is boring, and boring is good when you are looking for stable yield. We see the 8-per-cent yield as fully sustainable, driven by the CPA agreement between Air Canada and Chorus. The CPA extends to 2025. Upside exists for investors should Chorus be able to extend their leasing program beyond Air Canada.

Canexus Debenture "D" (CUS.DB.D-T)

For investors looking to reduce risk, we see upside to par for the CUS.DB.D, plus a healthy coupon in the meantime. We believe the company will either be sold to Chemtrade as per the current hostile offer, or deleverage their balance sheet through asset sales and cash flow. Either scenario proves positive for the debentures.

Past Picks: May 31, 2016

Morneau Shepell (MSI-T)

Then: $16.98 Now: $19.46 +14.61% Total return: +16.25%

Ten Peaks Coffee (TPK-T)

Then: $8.20 Now: $7.35 -10.37% Totalr return: -8.89%

ZCL Composites (ZCL-T)

Then: $8.69 Now: $11.19 +28.77% Total return: +30.61%

Total Return Average: +12.66%

Market outlook:

Short term, we have shifted our portfolio to a more defensive positioning, specifically non-equity-market-correlated investments to reduce volatility. We are using options, select shorts and debentures to reduce volatility through the Q3 earnings season and into the December potential rate increase.

We continue to believe 2017 estimated earnings for the S&P 500 are too high, and should see earnings expectations come down. Ultimately, we do believe we will see an earnings re-acceleration, but this has been largely already priced into the market. We also note that the S&P 500 lost about 12 per cent following the rate hike of 2015 and anticipate a similar reaction should the Fed move this December.

We believe the defensive sectors are starting to be attractive, but it is still too early to allocate capital to these sectors (REITS, utilities, telecom). We anticipate a very good buying opportunity for these sectors in 2017.

We also believe investors should begin watching for "tax-loss selling" stocks. Generally, selling of these stocks begins in November and concludes the second week of December. Currently, there are 26 S&P/TSX Composite stocks which have returns down more than 10 per cent for the year. Given the general positive return for the markets, these few tax loss candidates may face additional downward pressure.