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Top Picks from Robert McWhirter: AGT Foods & Ingredients, CAE and Maple Leaf Foods

Tags: Market Call

Robert McWhirter, President, Selective Asset Management

FOCUS: Canadian Dividend & Income Stocks

MARKET OUTLOOK:

In 2015, the S&P/TSX Composite Index was one of world’s weakest performers due to the impact of the decline of the price of energy and metal commodities. Interestingly, the CRB index appears close to a new monthly technical analysis buy signal. The 200-day moving average turned up on the U.S. ten-year bond yield at the end of October, and the U.S. two-year bond yield will give a new yearly technical analysis buy signal at the end of 2015. These technical signals appear to indicate that rising inflation may be a surprise in 2016.

For the first time in over two years, Canadian banks have moved up into the top 20 percent of our rankings. The banks’ improved ranks looks to be confirmed as many Canadian banks will give new technical analysis buy signals at the end of the month.

This is expected to be positive for the S&P/TSX due to the banks’ significant market weight.

Whatever unfolds in 2016 we will continue to use our multi factor approach be selective in investing in Canadian dividend and income stocks.

Top Picks:

AGT Food & Ingredients (AGT.TO)

AGT Food & Ingredientsprocesses pulse crops which are high in protein and fiber, as well as low in fat including. These include; lentils, peas, chick peas, and beans. The United Nations Food and Agriculture Organization has declared 2016 as the International Year of Pulses.

AGT’s earnings are forecast to grow 39 percent and 25 percent giving price-to-earnings to growth ratios of 0.5X and 0.6x in 2015 and 2016 respectively. Trading at 0.73 times enterprise value to trailing sales with return on equity forecasts of 13 percent and 18 percent for 2015 and 2016 AGT’s shares appear attractive.

CAE (CAE.TO)

CAE designs and implements training systems for the civil aviation, defense and security, and healthcare markets.

Trading at 9.6 times trailing enterprise value to EBITDA with 11 percent year over year EBITDA growth gives an EV to EBITDA to trailing ebitda growth ratio of 0.9x. Earnings are forecast to grow at 12 percent for the March 2016 and 2017 fiscal years. With a free-cash-flow yield of 3.25 percent (up 125 percent year over year) and a 14 percent forecast ROE CAE’s shares appear attractive.

Maple Leaf Foods (MFI.TO)

Maple Leaf is the largest consumer meat protein products company in Canada.

MFI embraces the Five Freedoms, which is the most widely accepted gold standard for responsible animal care. Almost 40 percent of greenhouse gas emissions come from the raising of cattle. Maple Leaf’s hog and poultry products are a much “greener” choice. Maple Leaf is a turnaround story as earnings have improved from $-1.06 to -$.54 in 2013 and 2014 and are forecast to grow to $0.54 and $1.06 in 2015 and 2016. Trading at 0.95 enterprise value to trailing sales with a forecast return on equity of 8 percent Maple Leaf’s shares appear attractive.

Disclosure:

Personal

Family

Portfolio/Fund

AGT

N

N

N

CAE

Y

Y

Y

MFI

Y

Y

N

Past Picks: January 2, 2015

Catamaran (CCT.TO)

Taken over in July 2105 @$80.18

  • Then: $61.44
  • Now: $80.18
  • Return: +30.50%
  • TR: +30.50%

Celestica (CLS.TO)

  • Then: $13.80
  • Now: $15.64
  • Return: +13.33%
  • TR: +13.33%

Sandvine (SVC.TO)

  • Then: $3.30
  • Now: $3.51
  • Return: +6.36%
  • TR: +6.36%

Total Return Average: +16.73%

Disclosure:

Personal

Family

Portfolio/Fund

CCT

N

N

N

CLS

N

N

N

SVC

N

N

N

 

 

 

 

 

 

 

Fund Profile

Canadian Dividend and Income

Performance as of: December 24,2015

Fund Index*

1 Month -0.60% -0.98%

1 Year +0.81% -6.35%

1.5 Year +7.70% -8.20%

* Index: The S&P/TSX Total Return Index

* Returns provided are net of fees

Top 5 fund holdings and weightings

Metro Inc. (MRU.TO) - 4.20%

Premium Brands (PBH.TO) - 4.20%

Loblaw (L.TO) - 4.10%

Linamar (LNR.TO) - 4.10%

CCL Industries B (CCLb.TO) - 4.10%

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