Darren Sissons, vice president and partner at Campbell, Lee & Ross
FOCUS: Global equities and technology stocks
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MARKET OUTLOOK

The market continues to be increasingly politicized causing it to trade in a number of segments on rhetoric rather than fundamentals. Korean equities, for example, are looking increasingly attractive. For investors with higher risk tolerances, that market should now be considered. The U.S. is increasingly looking on sale given the unjustified strength of the Canadian dollar. True, the Canadian economy did print a strong 4.5 per cent GDP performance, and unemployment levels are receding. However, 2016 was weak economically and employment levels were rapidly deteriorating, particularly in Q1/16. We also see no near-term catalysts for significant employment growth in the energy and mining sectors. Therefore, a major driver of our strong Canadian GDP performance was a return to mean consideration rather than an overall economic strength. Additionally, Canada’s strong GDP performance was by no means a rare event, as the Netherlands and Sweden for example grew at 6 per cent and 4 per cent, respectively. Much of Asia is still growing significantly faster than Canada. Relative to the U.S., political shenanigans and near full employment always implied a weaker relative growth for the U.S. economy versus our own. 

Given the relative fundamentals of the Canadian economy versus the U.S. and our broader trading partners, I was surprised by the interest rate hike on Wednesday last week as were a number of other commentators. Our dollar has rallied higher against the greenback and the Canadian financials will benefit from higher rates moving forward. Having said that, the U.S. is also tightening and the Eurozone is close to raising rates, so the current strength of the Canadian dollar may not endure. 

TOP PICKS

ALIMENTATION COUCHE-TARD (ATDb.TO)
A well-managed company with a track record of smart, accretive acquisitions. Expect continued margin improvement and synergy realizations. Dividend currently yields 0.6 per cent, up more than three times in the past three years with further dividend upside expected. The stock is on sale, as despite the strong earnings growth, it's 8 per cent cheaper than 12 months ago.

BANK OF AMERICA (BAC.N)
Dividend currently yields 2.1 per cent at a 0.16 per cent payout ratio. Given a pre-global financial crisis payout ratio of 45 per cent, the dividend could be tripled over the medium term without additional earnings growth. BAC benefits from a raising interest rate environment. and has a strong balance sheet. Under the Trump administration, money-centre bank regulation appears less draconian. Talk of repeal of portions of the highly punitive Volker Rule legislation, if effected, would lead to a substantial improvement in bank earnings.

ROTORK PLC (ROR.L)  
Growing dividend currently yields 2.20 per cent. Has a strong balance sheet and history of making smart, accretive, tuck-in acquisitions. An asset-light business model that needs minimal capital expenditures to expand. Global footprint and market leader in the acquator space. It is on sale due to concerns over Brexit, GBP currency and its oil and gas exposure, and an acquisition target. Note: Rotork can be purchased in the U.S. under ticker RTOXY.PK. 
 

PAST PICKS: NOVEMBER 11, 2016

NESTLE (NSRGF.PK)

• Then: CHF68.90
• Now: CHF81.40
• Return: 18.65%
• Total return: 21.73%

ROYAL DUTCH SHELL (RDSb.N)

• Then: US$54.39
• Now: US$58.58
• Return: 7.70%
• Total return: 13.05%

TRANSCANADA (TRP.TO)

• Then: C$60.20
• Now: C$62.54
• Return: 3.88%
• Total return: 6.97%

TOTAL RETURN AVERAGE: 13.91%
 

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