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Robert McWhirter is president of Selective Asset Management. His focus is on Canadian and technology stocks.

Top Picks:

Delphi Energy (DEE TSX)

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Delphi now uses slick water fracking, injecting five times more water and two times more sand into it's horizontal wells. Production is three times that of conventional fracking and wells pay off the cost of drilling in less than a year. Analysts have increased their 2014 earnings estimates by 18 per cent in the past 60 days. Delphi trades at a 41 per cent and 27 per cent premium on a price-to-forecast cash flow basis for 2014 and 2015 compared to the average energy company. Delphi's price premium appears justified as cash flow is forecast to grow at 77 per cent (4 times faster) and 42 per cent (2X faster) in 2014 and 2015 respectively compared to the average energy company.

Quantitative and technical analyst Tina Normann at Paradigm Capital recently noted that the July/August double bottom in natural gas has triggered the first natural gas versus oil MACD buy signal in 18 years. She believes that natural gas seasonality is favourable as in the past 10 years two-thirds of the time the price of natural gas went up in September and October. She notes that earlier this year Delphi Energy broke out of a 7 year basing pattern on strong volume. Her $8 technical target on Delphi is almost a double compared to today's price. Delphi is our fourth largest personal holding.

Prometic Life Sciences (PLI TSX)

Prometic is a manufacturing company with the bonus of PBI-4050, an interesting drug discovery. PLI has proprietary filtering technology used for large scale purification of drugs and is using this technology to extract proteins from plasma at their plant in Laval, Quebec. Clinical studies of three proteins extracted from plasma – plasminogen, IVIG and AAT – are expected over the next nine months. Roche spent $8.3-billion cash to acquire InterMune, a U.S. company with one approved drug, Pirfenidone used to treat idiopathic pulmonary fibrosis (IPF). Doug Cooper of Beacon Securities recently noted that Prometic's PBI-4050 also targets IPF and has also shown promising results in kidney, heart and liver fibrosis. He notes "in head-to-head studies published last fall, PBI-4050 showed better efficacy (worked better) than Pirfenidone." Alan Ridgeway of Paradigm Capital's target is $2.90. Doug Cooper's target is $3.50. Prometic is our eighth largest personal holding. I expect to be buying more in the coming days.

Questor Technology (QST TSX)

Questor designs and manufactures natural gas incinerators for sale or rental. Questor's incinerators are reliable with low operating costs and destroy over 99.5 per cent over noxious substances in flared natural gas. Questor reported Q2 results on Thursday. Earnings per share were up 58 per cent year-over-year and free cash flow per share grew 112 per cent year-over-year. Earnings are forecast to grow by 29 per cent in 2014 and by 65 per cent in 2015.

With a 27-per-cent trailing return on equity, strong free cash flow generation and a 2015 p/e to growth of .24, Questor's shares appear attractive. Questor is 5.4 per cent of our personal holdings and is our 8th largest holding.

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Past Picks: August 2, 2013

Avigilon (AVO TSX)

Then: $18.51; Now: $18.55 -0.32%; Total return: -0.32%

Celestica (CLS TSX)

Then: $11.10; Now: $11.96 +7.75%; Total return: +7.75%

Counsel Corp. (CXS TSX)

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Then: $2.23; Now: $1.70 -16.69%; Total return: -16.69%

Total return average: -3.09%

Market outlook:

U.S. economic numbers are looking increasingly normal. There is a disconnect between the improving U.S. Institute for Supply Management (ISM) statistics and declining bond yields. As a result we continue to favour stocks over bonds. The U.S. Federal Reserve will want to see a decline in "U6" unemployment , now at 12 per cent before raising rates. Equity valuations are reasonable as price earnings multiple in the U.S. and Canada are about fifteen times earnings. We expect North American equity markets to continue to make new highs over the next twelve months.

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