Bruce Campbell, president and portfolio manager at Campbell, Lee & Ross

Focus: Canadian large caps
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MARKET OUTLOOK
Of the G20 countries, Canada was the worst-performing for the first half of the year, but financials and energy hold hope for the back half. Corporate profits are rebounding, enough so that the Bank of Canada may well raise rates next week. Valuations here are cheaper than the S&P generally, and this provides investors with an attractive opportunity. Our banks are down year-to-date and have pulled back to a point where they are undervalued and attractive. Energy stocks are quite oversold at this point and stand to show a bounce when oil prices do stabilize at some point. These two sectors represent more than half the TSX, which bodes well for the overall performance. Interest-rate-sensitive stocks are giving up some of their gains and dividend seekers will search for places to go; banks and lifecos do fit the bill. Global growth is still intact, albeit not robust, and in this environment, dividends may well be the bulk of returns for a while going forward.

TOP PICKS

WALT DISNEY (DIS.N)
Disney is the pre-eminent worldwide, diversified entertainment company. It consists of 40 per cent broadcast and cable, 40 per cent resorts and studio and 20 per cent consumer products. ESPN has been a source of concern but despite its growth slowing, it is more than made up for by the growth of the other segments. The stock is now only 15x next year’s earnings and less than 10x EV/EBITDA, the cheapest levels for quite a while.

TRANSCANADA (TRP.TO)
TransCanada is a dominant energy infrastructure pipeline company with a 25 per cent market share of North American natural gas. A growth plan of seven to eight per cent per year, matched with dividend growth off of its four per cent current yield, is quite attractive. Its P/E ratio of 20x is slightly lower than most comparables, but with an above-average growth profile.

TD BANK (TD.TO)
TD is the Canadian bank with the most U.S. exposure with its American exposure at roughly 50 per cent of earnings. The bank group is down one full multiple point from the spring and is now in the middle of it historical range. With a high ROE, an excellent capital ratio and low exposure to troubled loans, it will be a beneficiary of higher U.S. profitability.
 

PAST PICKS: JUNE 15, 2017

ELEMENT FINANCIAL (EFN.TO)
U.S. leasing, broad-based exposure at a cheap valuation, misunderstood in the market.

• Then: $11.70
• Now: $9.00
• Return: -23.13%
• TR: -21.49%

Note: Element Financial (EFN.TO) split into two companies in September 2016: Element Fleet Management (EFN.TO) and ECN Capital Corp (ECN.TO)

Total return for both companies: +0.2%

ALIMENTATION COUCHE-TARD (ATDb.TO)
A good way to have retail exposure with no Amazon threat.

• Then: $53.49
• Now: $62.01
• Return: +15.92%
• TR: +16.55%

ALGONQUIN POWER & UTILITIES (AQN.TO)
Good U.S. growth with a good yield.

• Then: $11.73
• Now: $13.42
• Return: +14.40%
• TR: +21.33%

TOTAL RETURN AVERAGE: +12.69%