Ross Healy, chairman of Strategic Analysis Corporation; portfolio manager at MacNicol & Associates Asset Management
FOCUS: North American Large Caps
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MARKET OUTLOOK

I think at this juncture, that the best way to describe my outlook on the market would be “bemused”. Of course, I could add “bewitched, bothered and bewildered” to quote a (former?) musical market analyst.
The values are not there for a sustained bull market, indeed, our own intrinsic analysis of the S&P 500 is that it has about a 2-3% upside to reach its current Fair Market Value, and that would be it. 

When we look at what is going on in this milieu, we see stocks such as the auto stocks and parts manufacturers doing well, as investors, desperate to find good values are funding cheap stocks alright, but stocks that carry a lot of cyclical business risk at the present time. When you are desperate to find something, just to get invested, it may be time to sit on the sidelines and wait – and we are doing that with a good proportion of our clients’ assets. As Warren Buffett pointed out recently, you don’t have to swing at every pitch: indeed, you can sit out the game if you wish. But when people are anxious not to “miss something”, they will swing at those high fastballs, and then wonder why they struck out and got poor results down the road. 

There are a few stocks that make some sense and, if you are early entering them, you won’t be damaged too badly and they will recover in very reasonable time – so there is not “nothing to do”: it’s more a question of how much risk you want to take at this juncture.

TOP PICKS
 

MANULIFE FINANCIAL (MFC.TO)
I will carry Manulife Financial over from last year. The stock remains cheap with a decent yield. Earnings forecasts continue to rise steadily, pulling up the Fair Market Value and – I suspect, eventually the share price as well.

HOME CAPITAL GROUP (HCG.TO)
I continue to really like Home Capital Group now that I have seen the 2nd quarter balance sheet with the “Buffett alterations” in. I expect that earnings forecast and therefore the Fair Market Value of the stock will be picking up a lot of momentum, and I would not be surprised to see the reinstatement of a decent dividend as well.

FORTIS (FTS.TO)
Fortis is a well-run utility with a good yield and nicely rising earnings (and its Fair Market Value). Best of all, in the market meltdown in 2008, the bottom price/book ratio that this stock fell to was not very much lower than the current p/b ratio that it sells for today.

BANK OF AMERICA (BAC.N)

• Then: $21.50
• Now: $26.13
• Return: +21.53%
• Total return: +22.91%

CHICAGO BRIDGE AND IRON (CBI.N)

• Then: $33.85
• Now: $16.28
• Return: -51.90%
• Total return: -51.44%

MANULIFE FINANCIAL (MFC.TO)

• Then: $23.44
• Now: $25.43
• Return: +8.48%
• Total return: +11.25%

TOTAL AVERAGE RETURN: -5.76%
 

 
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