Aug 16, 2016

Andrew Pink's Top Picks: August 16, 2016

BNN Bloomberg

Andrew Pink , BNN

Andrew Pink, Portfolio Manager at LDIC Inc.

FOCUS: North American Income Stocks (Dividends, Fixed Income and Preferred Shares)

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MARKET OUTLOOK:

We are optimistic about the prospects for the North American economy through year-end. The resumption of strong U.S. job growth has been underscored by the 292,000 and 255,000 jobs added in June and July respectively. We expect the real economy may be buffeted by the U.S. Presidential election and ongoing concerns related to the U.K./EU situation, but should not cause any structural damage. In an extended low interest rate environment, Americans will continue to buy real estate, consumer products, and will travel more often. We expect this will underpin a resilient economy and support growth prospects for equities.

There is no doubt that North American equity markets have priced in a considerable amount of this positive sentiment, and as a result, we have some concerns about equity valuations which are quickly approaching 18x forward earnings for both the TSX and S&P component stocks. Equity markets typically experience seasonal volatility between August and October. Given current valuations and decreased visibility leading into the U.S. elections, we project this volatility may provide more attractive buying opportunities later this year.

Top Picks:

Algonquin Power & Utilities (AQN.TO), Most recently bought the Installment Receipts @ $33.30

Algonquin Power & Utilities is a fast-growing renewable power and regulated utility company with clean energy and distribution assets, and a large development pipeline in Canada and the United States. Algonquin recently agreed to acquire Empire District Electric Company, a U.S.-based regulated utility. This is a transformational acquisition valued at $3.4 billion, and financed in part by an attractively priced convertible debenture installment receipt deal paying a levered yield of 15 per cent at the IPO price. We have high conviction on the ability of management to continue to make accretive acquisitions and grow the platform through organic development opportunities.

Tricon Capital Group (TCN.TO), Recent Buy @ $9.49

Tricon Capital Group is a principal investor and asset manager focused on the residential real estate industry in North America with approximately $4.0 billion of assets under management. Tricon manages or directly investments within a number of segments, including; land and development, single-family rental homes, manufactured housing communities and multi-family development. The company evolved from a land and development pure-play to a real estate conglomerate, well positioned to benefit from a number of verticals related to U.S. demographic trends. Tricon has a large investment pipeline and a unique ability to steer capital to best opportunities which we expect will enhance shareholder value and increase the share price over time.

WSP Global (WSP.TO), Recent Buy @ US$64.15

WSP Global offers engineering and professional services in the areas of construction, energy, the environment, mining, municipal infrastructure, project management, telecommunications, and transportation. WSP is positioned well to benefit from proposed government infrastructure spending. We like the diversification by sector and geography, and expect that scale, technical experience and an industry leading backlog make this a compelling investment in the current low-rate environment.