Bruce Tatters, founding partner and CIO at Triumph Asset Management
Focus: North American large caps
- North American markets are in a digestion phase after the strong run late in the fourth quarter of 2016.
- Markets are awaiting policy certainty in a number of areas in order to resume any advance.
- We believe strongly that a unified Republican government will move decisively toward deregulation, lowering tax rates for both businesses and consumers, and placing an emphasis on revitalizing U.S. industries forgotten by Democrats.
- These policies will broadly stimulate both growth and employment in the U.S., strengthen the U.S. dollar, and move both short- and long-term interest rates higher.
- The Canadian outlook looks much more balanced as U.S. policy initiatives can have mixed impacts north of the border.
- One of the largest money centre lending institutions in the U.S. with a global presence.
- Key impediments to profit growth in U.S. banking industry has been the zero-rate policy of the Federal Reserve (impairs banks’ spread businesses) and stifling regulation, which are about to be removed.
- Lending growth and fee grow in many areas of business to benefit from faster GDP growth in the U.S.
- U.S. banking industry will get considerable tax relief from the >30 per cent tax rates currently, which will significantly grow earnings, in addition.
- Although the stock has had a significant run since the election, we believe that earnings will double over next three years, as will the stock.
UNITED CONTINENTAL HOLDINGS (UAL.N)
- U.S. airline industry has gone through a transition from being a highly-competitive industry to a very profitable oligopoly in recent years.
- Industry observers have been skeptical on the group’s profitability rolling over into 2017 and 2018, with which we do not agree.
- UAL, along with many U.S. carriers, still trade off historical valuation standards of 4-6x EV/EBITDA, which we believe will grow into the 7x level in the next couple of years.
- UAL is currently trading at 4.5x 2017 EV/EBITDA.
- At 7x 2017 EV/EBITDA, UAL should trade to 7x $105/share, or 45 per cent higher.
VALERO ENERGY (VLO.N)
- Valero is one of the most profitable national pure play refiners and mid-stream oil services players in the U.S.
- U.S. refining industry, similar to the U.S. banking group, is another industry which has been plagued by overregulation.
- This RIN regulation has been significantly impacting profitability levels at VLO and other U.S. refiners.
- VLO currently trades at 11.8x 2017E EPS of $5.40, whereas with regulation change we could see VLO’s earning power well through $6.00/share.
- Our target is $80 or 13x EPS adjusted for legislation.
PAST PICKS: AUGUST 17, 2016
ALLERGAN PLC (AGN.N)
- Then: $253.30
- Now: $219.23
- Return: -13.44%
- TR: -13.44%
SUNCOR ENERGY (SU.TO)
- Then: $36.33
- Now: $43.43
- Return: +19.54%
- TR: +21.34%
XPO LOGISTICS (XPO.N)
- Then: $36.00
- Now: $43.58
- Return: +21.05%
- TR: +21.05%
TOTAL RETURN AVERAGE: +9.65%