Steve DiGregorio, portfolio manager at Canoe Financial

Focus: Canadian dividend-paying stocks
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MARKET OUTLOOK
We anticipate 2017 will be a positive year for equity markets. However, there will be less return than in 2016, and higher volatility. The positive view for equity markets stems from the re-acceleration of earnings in both the United States and Canada. While we believe that estimates are slightly high for 2017, we do believe we will see earnings grow.

Our call for a significant increase in volatility is forward looking, as we see numerous political issues on the horizon: the change in administration in the United States as well as the French election, where center-right and right-wing parties are currently ahead in the polls. In addition, Britain’s exit from the European Union will be a long negotiation process, with Theresa May already placing a high anchor.

Options traders have placed large bets that volatility will increase significantly over the next four weeks. Large open interest in VIX options can be seen at strikes of 20, 21 and 22. These trades essentially anticipate that volatility will double.

TOP PICKS

MACDONALD DETTWILER & ASSOCIATES LTD (MDA.TO)
Entering 2017, we believe there are better opportunities in small- and mid-sized capitalized companies, as many of them have not been subject to macro indiscriminate buying. One such investment is MacDonald Dettwiler & Associates Ltd, a global communications company specifically focused on space-based solutions (satellite). The company ended 2016 on a high note, and has already continued the momentum this year, having secured up to US$200 million of NASA contracts through its U.S. business SSL. We continue to expect that the company will receive its facility security clearances in 2017, which would be a catalyst for the stock. MDA’s market capitalization is $2.5 billion. The company provides investors a dividend yield of 2.25 per cent, and currently trades at a very cheap forward PE of 11.2x.

BOARDWALK REIT (BEI_u.TO)
We believe shares of Boardwalk REIT are well positioned to appreciate as conditions in Alberta improve. The company owns over 30,000 rental units across Canada, with 60 per cent located in Alberta. While we concede apartment rental fundamentals are not ideal at the moment in Calgary or Edmonton, we anticipate a through in occupancy in Q1/Q2 of 2017. The stock currently has a large short position of over 20 per cent, as hedge funds are shorting both Canadian real-estate and oil derivatives. Given the large management ownership (>25 per cent), the stock could see a significant short-covering rally.

CINEPLEX (CGX.TO)
Cineplex offers investors a solid 3.1 per cent dividend yield, with earnings growth. We anticipate the 2017 box office will be very strong, with numerous high-profile films set to be released. In addition, the company continues to make progress within their digital media and gaming divisions.
 

PAST PICKS: APRIL 5, 2016

ARTIS REIT PREFERRED SHARES SERIES C USD (AX.PR.U.TO)

• Then: $17.30
• Now: $22.90
• Return: +36.70%
• TR: +37.70%

RONA PREFERRED SHARES SERIES A (RON.PR.A.TO)

• Then: $20.10
• Now: $24.00
• Return: +21.10%
• TR: +21.50%

TFI INTERNATIONAL (TFII.TO)

• Then: $22.47
• Now: $34.13
• Return: +51.89%
• TR: +54.80%

TOTAL RETURN AVERAGE: +38.00%