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bnn market call

Keith Richards.

Keith Richards is portfolio manager at ValueTrend Wealth Management of Worldsource Securities. His focus is on technical analysis.

Top Picks:

iShares S&P TSX Small cap index

Comparative relative strength vs. TSX 300 has reversed to trending up since May. The index broke its downtrend by late summer, and it's trying to form a "bottom head & shoulders" formation. I see that many of the large-caps that were the market leaders are slowing down, and the small-caps are starting to gain steam. This ETF is a great way to hold about 200 smaller Canadian stocks. We've also been buying individual names within this group – we think this will be a prime area for gains over the coming months.

BMO Equal Wt. US banks

This Canadian-dollar hedged play on the U.S. banks looks like an opportunity play right now. The banks are pulling back a bit based on various litigation, and lower trading revenue. However, they are a broad, relatively safe play on the U.S. economy. And they are somewhat cheaper than our banks. As the environment gets better in the U.S., it will help their banks. Meanwhile, this ETF is just now bouncing off of the trendline that's been in place since 2011. This is a buying opportunity – we think.

American International Group

We just bought a small position in this stock on Friday's dip, and are likely going to average in some more – I want to see around $58/share hold, which it seems to be so far. This stock has a great trendline that's been in place since 2011, and it's just on the verge of cracking its overhead long-termed ceiling that's been in place since its 2008 meltdown. The company has been re-inventing itself from its over-leveraged nightmare. It is now back to its wealth-and-casualty roots, has paid back its government bail-out loans, and has recently reinstated a dividend. The stock trades at a low valuation. This is another one of my rare "long term holds" – we think it will double over the coming years.

Past Picks: Oct. 1, 2013

Pembina Pipeline
Then: $34.03
Now: $34.24
Total return: +1.03 per cent

CAE Inc.
Then: $11.18
Now: $12.13
Total return: +8.50 per cent

Texas Instruments Inc.
Then: $40.40
Now: $42.00
Total return: +4.71 per cent

Total return average: +4.75 per cent

Market outlook:

Currently, we at ValueTrend are focusing on three main investment themes:

  1. To buy dividend growth stocks with great charts – particularly for TSX-listed stocks. Stocks that fit this criteria include the pipelines and Infrastructure stocks, and other companies with predictable cash flows.
  2. To look for rotation into new leadership. My last BNN appearance Top Picks of CAE (CAE-T) and Texas Instruments (TXN-N) fit that description, as does today’s Top Pick, American International Group (AIG-N). The TSX’s small-to-mid-cap area also offers numerous examples of newly emerging leaders. We’ve been buying select stocks in this area over the past month, including today’s top pick in the iShares TSX Small Cap index (XCS-T). Interestingly as well, I am noting that sectors which normally perform best during the summer and then take a back seat in performance in the winter are actually doing the opposite. For example, healthcare, consumer staples, and utilities were flat to bearish over the summer. Now, they are breaking out and starting to outperform the markets. This is another sign of leadership rotation.
  3. To avoid stocks that are clearly “rolling over” as they make way for the new market leaders mentioned above. While not a bearish call on these stocks, any stocks that are breaking their long-termed trendlines are likely going to take a back-seat in performance as we move forward in this market. Some examples of stocks breaking their trendlines include most of the big REITs, telecom giant BCE, and pipeline giants TransCanada Pipe (PCA-T) and Enbridge (ENB-T). U.S. stalwarts IBM (IBM-N) and Coca Cola (KO-N) are good examples of former market leaders decidedly broking their uptrends.