Barry Schwartz, chief investment officer at Baskin Wealth Management

Focus: North American large caps
_______________________________________________________________

MARKET OUTLOOK
With U.S. corporate profits having risen 14 per cent in the first quarter of 2017, it is not surprising that U.S. markets have performed well this year. Even though Canada’s economy is heating up, the TSX has been held back by weaker commodity prices and its over-performance in 2016. We continue to overweight North American equities given that safe-haven assets offer anything but safe returns. For the rest of 2017, we expect to see two more rate hikes in the U.S. and one rate hike in Canada, all things being equal. For fixed-income portfolios, we prefer rate reset preferred shares that offer some protection against rising interest rates. As cautious investors, we allocate our clients’ portfolios to a diversified mix of North American equities. In Canada, we are finding value in financial service and industrial companies. In the U.S., we continue to like health care, entertainment and technology. That said, one should always limit their exposure to any single stock or industry. Over the past 37 years, Canadian stocks that regularly pay and raise their dividends have delivered outstanding results. Your portfolio should be anchored by dividend growers. As always, long-term investors need to be patient and should use any market or stock-specific pullback to add to their existing holdings.

TOP PICKS

AIG (AIG.N)
NTM P/E: 12x, P/B: 0.82x, Dividend Yield: 2.0%

AIG’s new CEO Brian Duperreault has done a terrific job of fixing weak insurance companies. This is his second stint with AIG, having worked there for 20 years from 1973 to 1994. His focus will be on investing for growth, improving technology and attracting industry talent. We think the stock is cheap at 0.8x book (competitors trade at 1.4x book value) and will re-rate when profitability improves.

ROGERS COMMUNICATIONS (RCIb.TO)
NTM P/E: 18x, Dividend Yield: 3.1%

Another company with a new CEO, Rogers is trading at a bit of a premium to other telcos, but we think it offers good value here. We believe Rogers’ strong focus on customer service is working well; this was reflected in the very strong subscriber and churn figures last quarter. Rogers’ balance sheet is improving and we believe it will be in a position to raises its dividend in 2018. The company has a lot of assets that could be surfaced to realize value.

WALT DISNEY (DIS.N)
NTM P/E: 16x, EV/EBITDA: 10x, Dividend Yield: 1.6%

The key concern for Disney is cord-cutting at ESPN and other cable networks, but we think Disney offers compelling value here. Disney has a tremendous future. They have by far the strongest portfolio of films anywhere, and have the ability to leverage this in merchandise and parks. The company has a strong film slate heading out until 2020 and has plans to significantly expand its parks. Going back to ESPN, an underrated aspect of ESPN is that they have contractually increasing carriage rates of 6.5 per cent to seven per cent through 2019 with cable companies. The stock trades at a reasonable valuation and generates significant free cash. We wouldn’t put it past Disney to make a large acquisition soon.
 

PAST PICKS: JUNE 6, 2016

WHISTLER BLACKCOMB (WB.TO)
Stock taken over by Vail Resorts (MTN.N). Our clients own MTN. Whisler’s last day was October 17, 2016.

Figures below pertain to Whistler Blackcomb:

• Then: $25.49
• October 17, 2016: $36.48
• Return: 43.11%
• TR: 43.11%

INTERTAPE POLYMER (ITP.TO)

• Then: $19.89
• Now: $24.42
• Return: 22.77%
• TR: 27.84%

NORTHVIEW APARTMENTS REIT (NVU_u.TO)

• Then: $21.06
• Now: $21.25
• Return: 0.90%
• TR: 8.99%

TOTAL RETURN AVERAGE: 26.64%