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Gavin Graham.

Kevin Van Paassen/The Globe and Mail

Gavin Graham is chief strategy officer at Integris Pension Management Corp. His focus is global equities and North American large caps.

Top picks:

Allied Properties

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Allied specializes in former industrial (Class I) office properties on the fringes of the central business districts of Toronto and Montreal, which often cost tenants up to 50-per-cent less than conventional offices. It has steadily expanded over the last few years, and now has $3.3-billion in assets, up 24 per cent over the last year, with Adjusted Funds From Operations (AFFO) per unit in the nine months to end Sept. 2013 up 17 per cent to $1.23, and its AFFO payout ratio down 11 per cent to 83 per cent. It recently raised its dividend by 3.5 per cent and yields 4.4 per cent.

Beam Inc.

Beam is the world's largest bourbon maker, with its Jim Beam and Maker's Mark brands as well as Teachers scotch, Canadian Club, Sauza tequila, Pinnacle vodka and Courvoisier cognac. With around 20 per cent of its $2.5-billion (U.S.) in sales in fast-growing emerging markets and its concentration in bourbon and vodka, both of which are growing faster than the overall spirits market, Beam is set to continue to increase its revenues and earnings by mid to high single digits, as well as offering the possibility of a takeover by major drinks groups that don't have bourbon in their portfolios, sells for a P/E of 27x and yields 1.3 per cent.

Abbott Labs

Abbott is a U.S.-based medical products company with specializations in diagnostics (no.1 in immunology and blood tests) , medical devices, (leading positions in stents and laser eye surgery) nutrition (leader in adult nutrition and No.1 in infant formula in many countries) and generics. At the beginning of 2013, it split off its drug operations as AbbVie (ABBV-N). It derives 30 per cent of its $22-billion (U.S.) in revenues each from the U.S. and developed markets in Europe, Japan and Australia and 40 per cent from emerging markets, sells for a P/E of 20.8x and yields 1.5 per cent.

Past Picks: December 11, 2012

Tim Hortons Inc.
Then: $48.60
Now: $62.20
Total return: +30.34 per cent

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Dundee International REIT
Then: $36.57
Now: $28.10
Total return: -17.76 per cent

Unilever
Then: $38.20
Now: $39.81
Total return: +7.90 per cent

Total return average: +6.80 per cent

Market outlook:

Following one of the best years for stock markets in the U.S. and other developed markets in the last decade and a half, with the exception of Canada, markets' valuations now look quite extended, unless there is strong earnings growth in 2014. The cyclically adjusted P/E ratio (CAPE), as calculated by Prof. Shiller, is at levels where the returns for the next decade are likely to be in the 0-5 per cent p.a. range, and long term govt. bonds have seen their yields rise by over 1 per cent from their lows a year and a half ago, making the competition for investors' dollars that much greater.

In contrast emerging markets have not risen at all in 2013, their valuations are reasonable, and China's new leadership is refocusing growth towards the private sector and the domestic economy which should stimulate demand for commodities, helping resource-oriented economies such as Canada and Australia. it would be reasonable to expect mid-high single digit returns from both Canada and the U.S. in 2014, but with the Fed starting tapering some time next year, investors should lock in some of their profits from this year and adopt a defensive posture when selecting sectors.

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