Peter Brieger.
Peter Brieger is chairman and managing director of GlobeInvest Capital Management. His focus is on North American large caps.
Top Picks:
Hertz Global Group (HTZ-NYSE)
04/25: close $27.82; One year price target: $33.00; Target one year gain: 18.6%; Yield: 0.0%; Target total return: + 18.6%.
Hertz is one of the three leading global providers of vehicle rentals both at airports and "away from airports". It also provides car leasing and fleet management services through its Donlen subsidiary and equipment rentals through its Herc subsidiary. Management has announced that its current plans are to spin off Herc sometime during the next year or so. We are bullish on HTZ for several reasons. As world economic growth continues, it will help the overall airport business. Also, it has made rapid strides in penetrating the insurance replacement market and has aggressively pursued growth in other "away from airports" markets. As well, the stock is cheap relative to its main public competitor.
Agrium (AGU-TSX)
04/25: close: $103.98; One year price target: $120.00; Target gain: 15.4%; Yield: 3.18%; Target total return: + 18.6%.
Agricultural stocks in general suffer at different times from extreme weather conditions, oversupply and pricing issues and from time to time global political and foreign exchange issues. But all those issues notwithstanding, the world's growing population must be fed and its constituents are demanding a higher protein content in their daily meals. Agrium is a major producer of nitrogen fertilizer, key to enhancing the growth of corn. It also is a lesser producer of potash and phosphate. A jewel in the company's crown is its growing international retail business, which represents a major positive diversification from the fertilizer business.
Crescent Point Energy (CPG-TSX)
04/25: close: $43.99; One year price target: $52.00; Target gain: 18.2%; Yield: 6.27%; Target total return: + 24.5%.
CPG is one of Canada's leading mid-cap producers of primarily light oil both through primary and secondary water recovery. It has aggressively grown by acquiring highly prospective land positions in Canada and the U.S. as well as acquiring companies with similar prospects. The most recent is an accretive purchase of CanEra, a private company focused on the emerging Torquay oil play. It is being regarded as another potential Viewfield Bakken play. It is expected to add about 10,000 boe/d to CPG's production. Given a potential 150,000 boe/d overall production in 2015, we see continuing growth to cash flow per share. It is not inconceivable that with five years CPG will join the ranks of Imperial and Husky as another major player.
Past Picks: April 22, 2013
TD Bank (TD-TSX) * Stock Split * 2 for 1- 02/03/14
Then: $80.56; Now: $51.83 +28.67%; Total return: +33.46%
Inter Pipeline (IPL-TSX)
Then: $24.22; Now: $29.02 +19.82%; Total return: +25.71%
Crescent Point Energy (CPG-TSX)
Then: $36.63; Now: $44.03 +20.20%; Total return: +29.74%
Total return average: +29.64%
Market outlook:
As we suggested last month, the U.S. economy continues to improve, January and February's sub-par temperatures notwithstanding, as evidenced by a better consumer confidence reading, rebounding auto and retail sales as well as better durable goods numbers. It is true that home sales are lagging but we think that pause will prove to be temporary. At this point we see nothing that will derail the overall continuing but slow growth.
Internationally, the immediate current wild card is the degree to which Russia plans to interfere in the Ukraine and other former Soviet member states. At this stage it is anyone's guess but with the U.S. heading into its mid-term elections and the U.S. electorate not showing any appetite for new foreign excursions, Russian president Vladimir Putin may think he can get away with more aggressive behaviour than normal. That could roil markets.
Trying to assess the short-term outlook for the TSX 300 and the S&P 500 is somewhat more problematical particularly as we are entering May, which has from time to time proven to be a good time to sell. However, we are dubious about regarding it as an "automatic" sell signal.
From last Friday's TSX close of 14,533, a move to its 50-day moving average ("DMA") would result in a decline of 1.9 per cent and to its 200DMA a decline of 6.6 per cent. For the S&P 500 it is down about 1.8 per cent from its recent high. From last Friday's close a decline to its 50 and 200 DMA would take the average down about 0.6 per cent and 4.5 per cent respectively. Or from its recent high the total decline would be about 2.4 per cent and 6.2 per cent. Both markets' 50 and 200 DMA continue in an uptrend. Also, as of last Friday's close, the estimated forward price earnings ratios for '14 and '15 were 15.8 and 14.2 for the TSX and between 15.1 – 15.5 and 13.8 – 14.3 (depending on the earnings estimate one uses) for the S&P 500. In my view both markets while fairly priced are not outrageously so. And the latest Investor Intelligence Bull/Bear ratio is at 2.38, well down from an earlier plus 4.0 reading.
One worry I have heard is that the S&P 500, the Dow Jones industrial average and the Nasdaq composite have, since the year-end, been trading in ranges of about 5.6 per cent, 2.5 per cent and 8 per cent, respectively. These numbers exclude the January spike downs. Their inability to break out to new highs on better overall economic news and a good earnings reporting season has some worried that the next breakout from these ranges could be to the downside. At this point only the Nasdaq composite might be regarded as worrisome as its 50 DMA has rolled over and it is approaching its 200 DMA.
While we have frequently said that markets could see a 5 to 10 per cent correction at any time, I wonder if we may be starting to see a correction in a number of sectors and individual stocks rather than the market as a whole.
For example, on an overall basis the S&P 500's forward PER was 15.2 as of the 24th, and the Russell 2000's forward PER was 22.5 times. Looking back to 2003, the latter is closer to its high than the former. A correction may be in the cards but I don't know whether there will be one and if so, how much it might be. The Nasdaq Bio-Tech index was hot between year-end and February 21, rising some 18.5 per cent which was well above comparative major index performance. Since then it has declined to below the year-end level. Other areas where individual stocks seem to be priced in the stratosphere are referenced in the latest Grant's Interest Rate Observer. (April 18). Jim Grant points out that entities such as Amazon, Facebook, Zynga and LinkedIn have PERs of 559.4, 100.2, 86.7 and 742.0 respectively. In my world those stocks and likely many more of their ilk could see corrections major or otherwise.
Finally on a more specific basis, I currently have about 16 stocks on my "watch" list mainly in the water, agricultural and general manufacturing areas. They had great run-ups in the late fall/spring period and that put them above my entry points. Since then for one reason or another, some have sharply retreated from their highs. For example, while the S&P 500, the DJIA and the Nasdaq composite are down 1.8 per cent, 1.4 per cent and 6.3 per cent from their recent highs, the stocks on my list are down anywhere from 2.0 per cent to 14.4 per cent from theirs. That is fine with me as many are now approaching my suggested entry points. If and when reached we will compare their potential returns to the potential returns from current portfolio holdings and will take whatever action is indicated.
So what does all this mean? At this point while a general correction may be in the works I think at this stage it is likely to be confined to sectors and over priced individual stocks. If the Nasdaq composite breaks down it could impact the other two markets but at this stage that is conjecture only. For now we will continue to monitor markets and individual stocks looking for opportunities.