Bruce Campbell, president of Campbell Lee & Ross Investment Management Inc.

Focus: Canadian large caps
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MARKET OUTLOOK
The market moved higher after Brexit but has basically gone sideways for the last couple of months. Bond yields are so low that equities with yield are still the place to be. Slow but steady growth is still the ongoing story. Although valuations aren’t cheap, the S&P may trade over 20x times as it has in the past. If so, with renewed earnings growth of three to four per cent in the back half of the year (six per cent so far of S&P companies that have reported), we should see markets push through the all-time highs in the fourth quarter.

Earnings growth will be rewarded, and sectors that will benefit will be industrials, consumer discretionary and technology. Financials are cheap and should go higher later in the year, particularly those that benefit from higher U.S. rates. As long as rates stay at almost zero, gold will have a place in portfolios but should pause here after the December rate increase.

TOP PICKS

MANULIFE (MFC.TO)
The life insurers have lagged the banks this year, dragged down by their interest-rate sensitivity. As the U.S. starts to raise rates in December, the increase in spreads plus the Asian growth of Manulife should get rewarded with a higher multiple on the higher earnings. Our one-year price target is $22.

ALGONQUIN POWER (AQN.TO)
Algonquin's objective is to increase its dividend by 10 per cent annually, and its $2.4-billion acquisition of U.S.-based Empire District Electric Co. should help it accomplish that goal, Mr. Sissons says. The deal, once it closes, will be accretive to earnings and cash flow immediately and will provide longer-term growth and support for future dividend hikes. Complementing its growing utility operations, Algonquin's renewable generation portfolio — including wind, solar and hydro — has a strong development pipeline and is expected to more than double its EBITDA (earnings before interest, taxes, depreciation and amortization) to about $410 million by 2020. Our one-year price target is $13.50.

CN RAIL (CNR.TO)
At current levels, CNR is trading at 17.5x 2017 P/E, which is a little high but justified given the quality of the company. It was another strong performance on the operating ratio last quarter, which came from excellent execution of a solid operating plan and was also the fruit of various productivity initiatives on long trains, improved yard ops and higher train speeds. There is still not a clear path to strong growth in 2017 but overall, there is more comfort that volume can be positive on a YoY basis — but only in the four-to-five-per-cent range. With a one-year price target of $92, the recent pullback makes a good entry point.
 

PAST PICKS: NOVEMBER 23, 2015

TELUS (T.TO)

• Then: $41.39
• Now: $43.25
• Return: 4.49%
• TR: 9.16%

ELEMENT FINANCIAL (EFN.TO)

• Then: $13.88
• Now: $13.06
• Return: -5.87%
• TR: -5.24%

Element Financial (EFN.TO) split into two companies in September 2016: Element Fleet Management (EFN.TO) and ECN Capital Corp (ECN.TO).

Total return for both companies: -14.99%

This is included in the total return average of all three past picks.

MERCK (MRK.N)

• Then: $54.01
• Now: $59.79
• Return: 10.70%
• TR: 14.41%

TOTAL RETURN AVERAGE: +2.86%