Nick Majendie is portfolio adviser at ScotiaMcleod's Anchor Funds. His focus is on Canadian large caps.
Brookfield Renewable Energy Partners
Global renewable installed capacity is growing by about $200-billion of new supply a year. Brookfield Renewable has $17-billion of assets in three countries and allows investors to participate in this trend. The company has a target of increasing cash flow and distributions by three to five per cent per year, which we think will prove conservative over the next five years on the basis of redeployment of half a billion dollars of incremental capital and M&A opportunities. Low risk since over 90 per cent of 2013 cash flow is contracted and at least 80 per cent contracted for each of the next five years.
H&R Real Estate Investment Trust
H&R has been very active over the last two years with highlights being the completion of the Bow building in Calgary, the purchase of Primaris and the U.S. Echo initiative. The units are well below their 2013 high of $25.10 as a result of earlier fears of further increases in long term interest rates and some investor concerns about the buyback of the management contract. This has provided a buying opportunity in the units at a reasonable value. Our one year and 3-year targets provide healthy overall returns when combined with modest distribution increases each year.
Enbridge's 2012-2017 EPS growth target of 10-12 per cent per year should be exceeded over the next couple of years. Dividends should grow in line with EPS over the next number of years. The company each year calculates a dividend discount model with varying assumptions. Using those assumptions and a 8.5-per-cent discount rate, the company calculates a present value for the shares of about $57. At our purchase price, the discount to that value was 25 per cent or about double the normal discount at which the shares have historically sold plus being at the low end of its recent P/E range.
Past Picks: January 29, 2013
Brookfield Infrastructure Partners
Total return: +15.65 per cent
Total return: -5.71 per cent
Total return: +10.65 per cent
Total return average: +6.86 per cent
A month ago, we put the moderate amount of cash reserves in our funds to work when it appeared very likely that there would be a short-term resolution of the U.S. government shutdown and the U.S. debt ceiling. Since that time, North American equity markets have moved up well – with the TSX leading the S&P 500 in terms of performance as it has done since mid-year. In the short term, we are optimistic that the TSX will continue to outperform. Why? A key reason is that the TSX has breached the 13,000 level for the first time since 2011 when it actually hit a peak for the year of 14,200 in April. Clearing the 13,000 resistance level should provide impetus to institutional managers to put more money to work in Canadian equities – at least between now and year end. In addition, EPS growth for the TSX is forecast to be higher than that of the S&P 500 over the next couple of years and yet the forward P/E is cheaper.