May 20, 2016

Jaime Carrasco's Top Picks: May 20, 2016

Michael Chu, BNN Bloomberg

Jaime Carrasco , BNN

Jaime Carrasco, director & associate portfolio manager at Scotiabank Wealth Management

FOCUS: Resource & Utilities Stocks and REITs

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MARKET OUTLOOK:

Uncertainty will be the main constant for the remainder of the year. In the US we have the Trump vs Clinton presidential unknown until the fall and uncertainty as to whether the FED will raise or not in the months ahead, in Europe BREXIT and the ongoing problem in the European banking sector, in China and Asia we have the economic consequences of the housing bubble and an ongoing economic slowdown, and finally the economic and geopolitical mess of the Middle East. All this in the context of a slowing global economy which is being hindered by an unprecedented level of Sovereign debt, all in all, not a very positive picture for the markets and global currencies. In this reality I continue to recommend that clients take a contrarian stance and prepare for harder times ahead.

Since the beginning of the year the best performing sector has been the precious metals and clients have been well rewarded from their “financial insurance.” I continue to recommend that clients keep higher levels of cash and consider some physical gold and silver as a component of that cash position. Furthermore, I recommend that at least a 15 percent allocation of the portfolio into precious metals producers as they will have the best leverage in this environment. Ongoing uncertainty should continue be positive for the monetary metals and translate into higher levels by year end. While the shorts continue to pile up in the paper market, Gold has been forming a good base in the US$1250 to US$1300 range since March of 2015, boding very well for a great short covering rally when we break through US$1300. I continue to recommend that we hold the positions and patiently wait for the next move up. Gold is at C$1650.

On the energy front I have increased my allocation to energy to 10 percent from the 5 percent we had been maintaining since the fall of 2014. Energy prices have rebounded and have nicely settled in the mid US$40, it looks like we have seen the bottom giving us a good time to begin repositioning our considerations. As for the overall market I remain cautious as I don’t believe that the economy will catch up to current valuations, leaving us with a highly overvalued market at lofty levels, not a good position for the longs. To play this disconnect I continue to add a long/short hedge fund to the portfolio as a way to play the downside, however this is an investment vehicle for Accredited Investors only and therefore recommend higher levels of cash for other clients. I remain cautious and nimble in my positions.

It’s important to recognize that these are my opinions and not those of Scotiabank. I believe my team provides exceptional investment advice, research, and identifies unseen opportunities while providing unique wealth management solutions. The cost of this high standard of advice and service is fair, consistent, and competitive. We encourage you to give us a call and compare for yourself. My views can best be followed through my LinkedIn page at https://ca.linkedin.com/in/carrasco1, where you will find my contact info.

Top Picks:

Americas Silver (USA.TO)

This consideration has been a constant Top Pick for the last few years due to its management team, the geographical location of the assets and the quality of the ore on the ground. The management team comes from Barrick Gold and thanks to their experience this company has thrived and grown in one of the toughest markets, taking a company producing 500,000 ounces at $35.00, to the current 5 million ounces at $12. Going forward I expect much from this pick as the cost production will continue to drop and most likely the price of silver continue to climb.

Barkerville Gold (BGM.V)

Barkerville will go into production by years end and will become one of Canada’s biggest producing gold mines. They have an excellent management team headed by Thomas Obradovich and the backing of some of Canada’s most savvy mining investors including Eric Sprott. High grade deposit in British Columbia.

Vermilion Energy (VET.TO)

Vermilion has been a steadfast pick in the energy sector, and good way to begin adding to a sector that I have been mostly out since the fall of 2014, having reduced my position from 25 percent to 5 percent. I am currently bringing my sector allocation to 10 percent and Vermillion offers a good entry point due to the low cost production, quality of the assets and the fact that it is also a global play subject to Brent pricing with a 6 percent dividend yield.