Peter Brieger is chairman and managing director of GlobeInvest Capital Management. His focus is on North American large caps.
In choosing top picks I am guided by two basic principles:
- I look for companies whose business models provide the basis of ongoing increases in dividends as well as modest future growth;
- Where a company either has a low dividend yield or no dividend, I must be convinced that the company has solid ongoing growth and that its share price is reasonable relative to its growth prospects and the overall market.
02/21: Close: $28.76; One year price target: $32.00; One year target gain: 11.3%; Yield: 4.5%; Target one year total return: + 15.8%;
IPL has four basic businesses: shipping oil sands product and diluents; conventional oil pipelines; bulk liquid storage and NGL extraction. Of the four the future growth in oil sands shipments provides IPL with its strongest growth prospects as it can leverage future cash flow from bringing its Polaris and Cold lake pipelines up to 100-per-cent capacity relative to the current operating rates of 15 per cent and 73.8 per cent respectively. Both lines' capacity is being increased. Also we are confident that the company will win some bids on the estimated future $3.0-billion of new pipeline projects.
02/21 Close:$49.65; One year price target: $54.00; One year target gain:8.8%; Yield: 3.5%; Target one year total return: + 12.3%;
On a price earnings basis, we think banks are cheap relative to their ongoing prospects. Our choice of TD Bank is based on expected continuing growth in the U.S. and Canada, a modest boost to earnings because of a lower $CDN/$US, cross selling to new credit card customers and an increasing contribution to earnings from wealth management and capital market activity. These should provide the basis for future increases in dividends.
Central Fund "A"
02/21 Close: $16.58; One year price target: $17.25 - $$20.50; Yield: 0.1%; Target one year total return: 4.0% - 23.6%
We remain bullish on the price of gold and silver bullion and related shares. Our view is that gold bullion is in a moderate recovery phase which could take its price up to between $1,420 (U.S.) and $1,620, two price levels from which it broke down from in March and May 2013. The equivalent upside for CEF'A shares is $17.25 (Cdn) and $20.50 respectively for percentage gains of between 4.0 per cent and 23.6 per cent. The potential gains in the price of gold are supported by the recent acceleration of bullion buying by China, a potential change in India's import rules which will lead to increased buying and finally selling/redemption exhaustion from bullion ETF holders.
Past Picks: FEBRUARY 25, 2013
Then: $28.82 (U.S.); Now: $28.52; Total return: -1.04%
Toronto-Dominion Bank - * Split 2 for 1* 02/03/2014
Then: $84.01 (Cdn); Now: $49.44; Total return: +22.15%
Then: $23.00; Now: $28.91; TR: +31.91%
Total return average: +17.67%
With the recovery in the TSX to new highs and the S&P 500 close to its early January high, both have moved back into "over-bought" territory but not to the same extent as in early January. We remain constructive on equity markets even though we are aware of potential "grey swans" such as a major dislocation in the Chinese financial system from the potential collapse of other financial products (we place a low probability on this), and further political disruptions in the Ukraine and Venezuela.
As for North American economic data – in our view the latest economic readings have been impacted by the recent and ongoing severe weather patterns. Therefore, this data does not provide many clues about future growth. That said we think that underlying growth remains positive and that this will support future stock prices.
In our view, the current worst case declines for the S&P 500 (excluding the grey swans turning into black ones) from Friday's close are between 1.6 per cent and 5.9 per cent (the S&P 500's 50 and 200 day moving averages respectively). For the TSX the similar declines would take it down between 3.5 per cent and 7.2 per cent. In terms of potential upside for the S&P 500, in 2003 the forward PE Ratio rose to about 18 times. Assuming 2014 and 2015 earnings of $120.00 and $130.00 per share the potential S&P levels at the following forward PE Ratios would be: @ 18 times: + 17.6 per cent and 27.5 per cent respectively; @17 times: + 11.1 per cent and 20.4 per cent respectively; @ 16 times: + 4.6 per cent and 13.3 per cent respectively; @ 15 times – 2.0 per cent and + 6.2 per cent respectively. At this stage we do not think an 18 PE Ratio is likely but think that a 16 – 17 number is not out of the question.
We note that in the recent recovery from the January lows many of the stocks on our buy list went to new highs and/or reached their January highs. Therefore, while remaining positive and while not discounting a further modest correction, we will wait for better buying opportunities on any potential portfolio additions.