John Kim, Portfolio Manager, Aston Hill Financial

Focus: North American Equities

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MARKET OUTLOOK:

Short term a little cautious as we have are making new highs in the U.S. and at 52 week highs in Canada. September and October are generally the worst for stocks. Q2 earnings are still down year-over-year, but Q3 may be the end of the earnings declines. I expect oil close to $50, nice rebound off recent low of $39. But I expect markets to end 2016 flat to slightly up from here, but expect volatility to pick up.

Top Picks:

First Data Corp (FDC.N)

Concerns around their high debt and slowing economy and market share losses weighing on stock price and 15 per cent international exposure. Management has been focused on restructuring of debt to lower interest cost and extend maturities, which they have largely accomplished. Now they can turn their full attention to execution on business. We believe they can stem the share losses and steady the business. First Data should generate over $3 Billion in free cash flow through 2018 with can be used to pay down debt. That is over 30 per cent of their market cap.

XPO Logistics (XPO.N)   

Logistics and Less than Truck Load (LTL) carrier. Finally starting to see operational efficiencies leading to free cash flow generation. Company targeting free cash flow of $500 to $800 million in 2018. Market cap of company is $4 billion. Should generate at least $1 billion in free cash flow for 2016, 2017 and 2018. So expect to pay down debt. Leading to 25 per cent return for equity. Or if they can achieve high end of 2018 guidance and stock trades to 10 per cent FCF Yield then stock could double.

Badger Daylighting (BAD.TO)

Badger is a hydrovac operator throughout North America. Almost half their business was from oil and gas a couple of years ago. With the downturn in activity, this part got hit badly. Now it is 38 per cent. Utilities is the other half of the business, which is relatively stable. We think BAD is at the trough and that with oil and gas activity picking up, this will help Badger. It is a derivative play on recovery in oil and gas.

Past Picks:  July 11, 2016

Allergan (AGN.N)

• Then: $238.28
• Now: $253.54
• Return: +6.40%
• TR: +6.40%

Enerplus (ERF.TO)

• Then: $8.21
• Now: $9.62
• Return: +17.17%
• TR: +17.33%

First Data (FDC.N)

• Then: $11.01
• Now: $13.36
• Return: +21.34%
• TR: +31.34%

Total Return Average: +18.36%

Website: WWW.ASTONHILL.CA