Bill Shaw, partner and portfolio manager, Exponent Investment Management
FOCUS: Canadian dividend stocks and REITs

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MARKET OUTLOOK:

The TSX and S&P 500 have steadily climbed since the election of U.S. President Donald Trump. The equity rally since then has been built upon Trump’s proposed new polices to “make America great again” including reduced taxes, reduced regulations and a significant investment in new infrastructure. Valuations aren’t cheap: the S&P 500 and the TSX are both trading over 24 times forward earnings. As a result of expensive markets, stock picking is crucial.

I continue to favour the banks and life companies in Canada and the U.S., as they’ll be the prime beneficiaries of increasing interest rates and improved equity markets. With the price of oil in the US$50 range, I expect oil and gas companies will have a great year ahead as long as OPEC members cooperate to cut back supply, which seems to be happening at this time.

So what can go wrong with this picture? If Trump can’t get his proposed policies in place quickly, the U.S. and Canadian rallies will end fast as the expected economic benefits are already being priced into the market. In light of the expensive equity valuations, I’ll be raising cash positions in my clients’ portfolios to the 15 to 20 per cent range to take advantage of any market corrections.

TOP PICKS:

BANK OF MONTREAL (BMO.TO)

Bank of Montreal has strong results, good U.S. exposure and an excellent track record of dividend growth.

CORUS ENTERTAINMENT (CJRb.TO)

Cost synergies from Corus’ Shaw acquisition will continue to be realized and subscriber growth is expected to continue. The company also has a nice dividend and an improving payout ratio.

MANULIFE (MFC.TO)

Manulife is well managed, has an excellent dividend and will benefit from a rising interest rate environment.

WEBSITE: ex-ponent.com