Lyle Stein, Senior Portfolio Manager and Managing Director, Vestcap Investment Management 
FOCUS: Canadian Equities

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MARKET OUTLOOK:

Equity markets continue to exhibit an eerie complacency. Driven by liquidity and a general FOMO (fear of missing out), markets are trading trade at or near all-time highs. The anticipation of continued earnings growth continues to drive an ever-shrinking pool of momentum stocks, taking markets higher, but underneath there are circumstances which cause contrarians like Vestcap to take pause.

Volatility (VIX) is at an all-time low. Interest rates, which have risen over the past year, remain in a general upward trend, with a bias to being higher than lower over the next 12 months. The earnings growth that the market seems to be banking on is coming from the sectors that no one seems to want. Energy and Materials stocks, the backbone of the Canadian equity market, are languishing, and in many instances, are down a third from their highs. Yield-rich Financial stocks are faring no better, despite the increasing need for income by the aging demographic. 

The Vestcap view continues to be one which favours equity, avoids debt and emphasizes a higher-than-average cash position to take advantage of market disappointments which seem to regularly occur. As long-term investors, we want to use trading-oriented volatility to our advantage.

Top Picks:

HudBay Minerals (HBM.TO)

HudBay provides exposure to our two top commodity themes - zinc and copper. In the near-term, zinc has the potential to see a significant rise in price as depleted inventories leave buyers scrambling, a result of underinvestment in the industry over the past decade. In the medium-term, the same underinvestment theme is playing out in copper. HudBay recently disappointed traders with its Q1 release, an event which has created a buying opportunity.   

Suncor Energy (SU.TO)

Suncor is the gorilla in the oil patch. The Vestcap view is that oil trades in a $45 to $55 range; at current prices we want to add to oil exposure and Suncor is our preferred name due to its liquidity.  With a yield of 3 per cent, a strong balance sheet, and long-lived assets, we view this name as the safest way to add to our significant underweight position.

Starbucks (SBUX.O)

Starbucks in a global consumer franchise catering to the growing middle class around the world. Asian operating profit represents 15 per cent of the company total, and is growing at 20+ per cent per year. Double digit dividend growth is driven by a decade of margin growth. Added it as part of our strategy to increase U.S. holdings following strong 2016 for the Canadian stocks in our portfolio.

 

Disclosure Personal Family Portfolio/Fund
 HBM
SU 
SBUX 

 

Lyle Stein - Top Picks

Lyle Stein of Vestcap Investment Management shares his top picks: HudBay Minerals, Suncor and Starbucks.

 

Past Picks:  JULY 5, 2016

Equitable Group (EQB.TO

  • Then: $54.99
  • Now: $46.00
  • Return: -16.34%
  • TR: -15.48%

Cineplex (CGX.TO)  

  • Then: $52.25
  • Now: $53.38
  • Return: +2.16%
  • TR: +4.89%

Agnico Eagle Mines (AEM.TO)

  • Then: $71.93
  • Now: $62.90
  • Return: -12.55%
  • TR: -11.96%

Total Return Average: -7.51%

Disclosure Personal Family Portfolio/Fund
EQB N N N
CGX Y Y Y
AEM Y Y Y

 

Lyle Stein - Past Picks

Lyle Stein of Vestcap Investment Management reviews his past picks: Equitable Group, Cineplex and Agnico Eagle Mines.

 

Twitter: @Vestcap1988 

Website: www.vestcap.com