Rick Stuchberry, portfolio manager at Richardson GMP 

Focus: Canadian large caps and international ADRs
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MARKET OUTLOOK
The election of U.S. President Donald Trump coincided with a breakdown of the bond market, and this big surprise changes everything in the investing environment. In a world where yields are rising, investors need to reassess many holdings and screen for potential trouble via debt load and spread to the risk-free rate of return. We continue to have an overweight in financial equities; we think they will continue to rally with yields going forward. We then have a second investment style we call “yield agnostics.” These stocks have either zero debt or negligible debt, and rising yields will not impact their operations at all. We continue to underweight yield investments; we see there being a higher degree of balance sheet risk as well as exposure to rising risk-free yields dropping the stock prices. We think our strategy will successfully guide us through the next phase of the market.

As risk-free yields rise, we think financials will benefit and yield equities will struggle, and thus expect to allocate a higher amount to what we call yield-agnostic stocks.

TOP PICKS

WESTERN DIGITAL (WDC.O)
Western Digital is a hardware company focusing on memory. They completed a takeover of their competitor Sandisk in May. The company has gone from a net cash position to a net debt position. This shouldn’t affect the dividend which was 3.5 per cent on purchase price. The takeover has increased revenue, and we believe synergies will make this a 1+1=3 scenario.

CARDINAL ENERGY (CJ.TO)
Has an immaculate balance sheet with very low debt. They have a low decline rate, meaning they require less capital to sustain and grow production. Cardinal has excellent torque to higher oil prices, meaning minor moves in oil price have good torque in cash flow. They have a good four per cent dividend and can grow it over $55 a barrel as well as grow production within their cash flow. We see the company growing above a billion in market capitalization.

ING GROEP (ING.N)
ING Groep is a northern European financial that has been completely transformed post financial crisis. They renewed their core focus on Europe from abroad and have increased investment in technology. They operate efficiently and reinstated a dividend after paying off the government bailout — they currently pay 0.24 euros per share dividend and plan to reach 0.65 dividend by 2020. We believe they will follow the U.S. financials trading pattern.
 

PAST PICKS: NOVEMBER 6, 2015

SHOPIFY (SHOP.N)

• Then: $31.54
• Now: $41.00
• Return: 29.99%
• TR: 29.99%

CISCO (CSCO.O)

• Then: $28.45
• Now: $30.48
• Return: 7.13%
• TR: 10.89%

BADGER DAYLIGHTING (BAD.TO)

• Then: $19.55
• Now: $30.94
• Return: 58.26%
• TR: 60.93%

TOTAL RETURN AVERAGE: 33.94%
 

WEBSITE: www.richardsongmp.com/richard.stuchberry
TWITTER: @StuchberryGroup
BLOG: www.richardsongmp.com/richard.stuchberry/blog