Jun 17, 2016

Norman Levine's Top Picks: June 17, 2016

MIchael Chu , BNN Bloomberg

Norman Levine , BNN

Norman Levine, Managing Director, Portfolio Management Corp

FOCUS: North American Large Caps

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MARKET OUTLOOK:

At the beginning of the year, it looked like the world was coming to an end with markets, commodities, and the Canadian dollar all falling precipitously. Clearly, in hindsight, they all declined too far, too fast with the result that they have all, in our opinion, rebounded too far, too fast. Short covering has had a lot to do with the subsequent rebounds as not a lot of new money has been committed to stocks, commodities, or currencies.

Now, with the uncertainty over the possibility of Brexit, interest rates, the U.S. presidential race and world economies, it seems that stock markets around the world look vulnerable in the near term. In the very short term, the uncertainty over whether the U.K. with stay in or leave the EU is dominating currency, bond, and stock markets. This will be resolved next Thursday but at the moment the outcome is quite uncertain, which is causing a great deal of market angst. However, remember that crisis equals opportunity. For that reason we are carrying a significant amount of cash and are ready to deploy it if the right opportunities present themselves.

Top Picks:

SNC-Lavalin (SNC.TO) Originally purchased March 30, 2012 at $42.22 and currently being purchased for new accounts.

SNC is one of the world’s premiere engineering and construction companies. Under new senior management, it has emerged from its scandals of a few years ago a much better run company. Despite the headlines of past infractions, new business has been coming unabated. Under the Trudeau government’s infrastructure spending plans, we expect SNC to be a major beneficiary and despite its previous problems, SNC is entitled to bid on and expected to win a significant amount of business in the next few years. We expect margins to increase at SNC and the company is underleveraged compared to its competitors so we expect it to make some significant acquisitions in the next couple of years, using mostly debt, to increase its earnings potential. The possible sale of its stake in Highway 407 could be a major catalyst for the stock. The dividend has been increased annually and we expect that to continue. SNC currently yields 2.0 per cent.

Parkland Fuel (PKI.TO) We have owned the stock for quite a number of years and it is currently being purchased for new accounts.

Parkland is a fuel-products distribution company with operations mostly in Western Canada. Gas stations are its largest business but it also has wholesale and commercial operations. It has grown rapidly over the years through acquisition, with the most recent major acquisition being Pioneer Energy in Eastern Canada in the past year and Chevron stations in Western Canada. There are a number of possible major acquisition targets in the next few months and we expect Parkland to be an active bidder and to be successful in many of its bids. These acquisitions fuel its growth (pardon the pun). The stock currently yields 5.1 per cent and we expect continued small incremental increases to the dividend in the future.

Deutsche Telekom (DTE.DE) We have owned the stock for quite a number of years and it is currently being purchased for new accounts.

Deutsche Telekom is the largest telecom services company in Germany as well as the majority owner of T-Mobile in the U.S. We see good continuing revenue and EBITDA growth for the company in Germany as well as strong commercial growth for T-Mobile in the U.S. The stock, like those of many European stocks, has been weak of late over worries concerning Brexit. We consider that as a temporary opportunity for investors. In addition, a possible monetization of T-Mobile could happen as early as 2017. The main risk to Canadian investors is the $Cdn/Euro exchange rate. DTE currently yields 3.8 per cent and we continue to expect regular dividend increases.