Michael Bowman is executive vice-president and portfolio manager at Wickham Investment Counsel. His focus is on North American large caps and ETFs.
Encana Corp. (ECA TSX)
Encana recently spun off Prairie Sky, a unique arrangement as it involves "fee simple" property. Encana will be leasing the rights to 5.2-million acres and these companies pay an up-front amount that grants them the right to explore on the property for a fixed term. If these companies find oil or gas, they pay a royalty to Encana. In addition, ECA purchased 45,000 acres in the Eagle Ford Shale in Texas. This area is instrumental in allowing the U.S. to become the world's largest oil producer next year. The company has come full circle from spinning off its oil assets into Cenovus in 2009. The acquisition is immediately accretive. ECA trades at an unwarranted discount to its peers. Q1cash flow was well above consensus.
FedEx Corp. (FDX NYSE)
The company is starting to see traction from its restructuring program with continued execution on cost cutting, efficiency improvements, and revenue generating ideas. EPS and revenue were above consensus. The company has a solid financial position and low debt. FDX will benefit from improvements in the U.S. and global economies over the next year, which will lead to increased volumes across the entire network. Investors will favourably view logistic companies on signs of economic recovery.
Fluor Corp. (FLR NYSE)
Fluor is one of the world's largest construction companies with more than 65-per-cent of the backlog outside the U.S. I continue to see further demand for oil and gas projects although mining and metals business has been soft. I see overall improvement in 2014 and 2015 in many of Fluor's markets. The company has a strong balance sheet, modest debt levels, and a diverse product mix and customer base. Fluor screened very well in my Number Cruncher column in Wednesday's Globe and Mail's Report on Business.
Past Picks: June 18, 2013
Global X Top Guru Holdings Index ETF (GURU NYSE)
Then: $21.12; Now: $26.37 +24.86%; Total return: +25.01%
iShares S&P Global Industrial Index Fund Hedged to CDN $ (XGI TSX)
Then: $20.39; Now: $24.69 +21.09%; Total return: +22.55%
iShares S&P Global Consumer Discretionary Index ETF Hedged to CDN $ (XCD TSX)
Then: $21.58; Now: $24.80 +14.92%; Total return: +16.84%
Total return average: +21.47%
While U.S. economic growth remains sluggish, businesses plan to do more hiring and increase wages, capital spending is picking up, housing is showing more signs of life, and consumer confidence is on the rise. Surveys have shown optimism that has not been seen since 2007.
Elsewhere in the world, Iraq and Ukraine dominate the headlines, but China has more potential to destroy investment portfolios than any other geopolitical risk. China remains the world's top consumer of commodities and now China has jumped ahead of the U.S. to become the world's largest issuer of corporate debt. Many of these companies are highly leveraged with shrinking cash flows. The biggest risk around the world is a debt default in China. You can't build your portfolio on the belief that China is a perpetual economic powerhouse.
Technically, many indicators, such as the CBOE equity put call ratio, the TICK index, the McClellan Oscillator, and the Relative Strength indicator and the VIX are all signalling a correction is imminent, but it has been extremely difficult to predict. In addition, insiders are extremely pessimistic on their own company's shares. They have been selling 6 shares for every one that they buy. This is the most pessimistic insiders have been in 25 years.