Ross Healy, chairman of Strategic Analysis Corporation and associate at MacNicol & Associates Asset Management
FOCUS: North American large caps
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MARKET OUTLOOK

The Jenga Tower
Right now, the markets are in the summer doldrums, with little action in any direction, including very few new highs and lows. I suspect that this reduces the perception of market risk by a considerable margin: as J.P Morgan is reputed to have said when asked about the outlook, he said that "The market will continue to fluctuate," so why should anyone worry any more today than yesterday? However, no matter how we look at it, the market is expensive, many key stocks are severely over-priced, and sooner or later, investors will pay for their over-optimism.

Nothing seems to phase the markets right now, however. North Korea shoots a missile over Japan? Hmmm. Trump tweets doom and destruction for NAFTA? Hmmm. Venezuela collapses? Not our country. The retail sector buckles under the weight of Amazon’s discounting? Meh. It’s all sort of like a Jenga Tower, however. You take away the supports one by one, and nothing happens, and then suddenly the whole thing topples over.

But what is the pivot point? What is that key event that sends things awry? Or is there a pivot point? I suspect that it will come from somewhere that we least expect and it will seem innocuous, but in retrospect will be seen as being obvious even if now, no one – ourselves included – can identify it, like the last Jenga piece that finally destabilizes the whole structure.

We know that market fragility is increasing because investors are again buying things that they don’t understand – like all those ETFs weighted to the most expensive stocks. It reminds me of the dot-coms and the Nifty Fifty era before that. They look fine now, but are highly likely to significantly underperform if the market ever weakens.

There is no contagion as of yet, but with generally poor values out there to invest in, caution and a decent cash holding should serve investors in good stead – even if the operative word is "eventually."

TOP PICKS

COMINAR REIT (CUF_u.TO)
The units are very cheap, being at a solid discount to book value. The 8.43 per cent yield is well above average, and the company is making excellent progress in reducing its unleased space to bring its occupancy level to the average for the industry. I further expect a bond rating upgrade for the company as the next year unfolds.

ALAMOS GOLD (AGI.TO)
A superbly-run junior gold mine, which has worked hard to reduce its costs and is showing better than expected results because of this effort. I do expect higher bullion pricing ahead for the coming year which should add to the attractiveness of the stock – which is trading at only 20 per cent above its book value.

TD BANK (TD.TO)
This is included because the Canadian bank stock group is one of the cheapest groups that we monitor. I happen to like TD as much as any, and its latest earnings were superb. 
 

PAST PICKS: OCTOBER 11, 2016

GOLDCORP (G.TO)                    

• Then: $18.53
• Now: $17.06
• Return: -7.93%
• Total return: -7.53%

METLIFE (MET.N)                     

• Then: $42.16
• Now: $47.75
• Return: 13.25%
• Total return: 17.29%

COMINAR REIT (CUF_u.TO)   

• Then: $14.66
• Now: $13.52
• Return: -7.77%
• Total return: 1.31%

TOTAL RETURN AVERAGE: 3.69%
 

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