Norman Levine, managing director at Portfolio Management Corporation

Focus: North American large caps
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MARKET OUTLOOK
Election day in the U.S. is a terrible day to be making market predictions, especially if you are a short-term investor. Fortunately, we are long-term investors and can afford to look through the noise and focus on market fundamentals. First, we see the U.S. economy continuing to strengthen. This is positive for corporate earnings and calls for higher interest rates. While this will be positive for stocks in the long term, we see valuations stretched for many stocks and sectors and therefore we will not be surprised by a correction. Remember, we are almost eight years into the current bull market, so it is getting a bit long in the tooth. A correction to bring valuations back into line will be welcome and will give us a reason to spend some of our cash. Second, a stronger U.S. economy means higher yields on bonds and the Fed finally raising rates. This will be negative for the bond market until it finds its new equilibrium and negative for stocks and industries that have benefitted from the search for yield, ie. REITS, pipelines, utilities, telecoms and consumer staples. It’s positive, though, for financials (especially lifecos and U.S. regional banks), industrials, transportation companies and infrastructure companies. Also, it could give a boost to some rate-reset preferred shares.

TOP PICKS

METLIFE (MET.N) – Owned by clients, self and family. Bought on September 20, 2016 at $44.12
MetLife is a return-on-investment story through both the separation of its retail business and a $1-billion cost-cutting program. Higher interest rates and a potential share buyback would add to the upside. MET is our kind of stock. It is not well liked and trades where it did in 2010 due to the poor industry environment, being classified as a SIFI (Strategically Important Financial Institution) and constant charge-offs. While higher interest rates would be great for the stock, the coming spin-out of its capital-hungry retail life insurance business (Brighthouse Financial), a hope that the company will subsequently no longer be classified as SIFI, and a $1-billion cost-cutting program are the keys to the stock working. In the meantime, the current 3.4 per cent yield is nice to get while we wait.

STANTEC (STN.TO) – Owned by clients, self and family. Bought on September 13, 2016 at $30.22
Stantec is an engineering and design company that we bought to benefit from the expected surge in provincial and federal government infrastructure spending as well as the ongoing recovery in commodity prices. It grows both organically and through acquisitions. Its most recent acquisition was MHW Global, which gives it increased exposure to the high-growth water engineering business as well as increased presence in the U.S. Since initiating its dividend in 2012, Stantec has increased it each year and currently yields 1.5 per cent.

ARC RESOURCES (ARX.TO) – Owned by clients, self and family. Bought November 2014 at $28.55
ARC is an oil-and-gas exploration and production company in Western Canada. While it operates in all four Western provinces, the majority of its assets are in the Montney play in Northeastern British Columbia. Its production is split 60 per cent natural gas and 40 per cent oil. It is a low-cost and high-quality producer with one of the best managements in the business, exactly what you want in this type of environment. We are positive on the outlook for natural gas (much more so than oil), so view the company very favourably here. ARC currently yields 2.6 per cent.
 

PAST PICKS: OCTOBER 1, 2015

GENERAL ELECTRIC (GE.N)

• Then: $25.19
• Now: $29.48
• Return: 17.03%
• TR: 20.65%

BB&T CORPORATION (BBT.N)

• Then: $35.63
• Now: $39.02
• Return: 9.51%
• TR: 13.93%

MORNEAU SHEPELL (MSI.TO)

• Then: $15.50
• Now: $19.80
• Return: 27.74%
• TR: 34.38%

TOTAL RETURN AVERAGE: +22.98%