Download Weekly Market Update - The Fuhr

Markets Energized
Canadian and U.S. equity markets have recovered from
the weakness earlier in the year. The improvement in
equity markets has been driven by increased
confidence due in part to recovery in the price of oil.
As we have become more constructive on the outlook
for oil prices, we are starting to plan slowly increase
our exposure to producers, with a focus on companies
that are in a strong financial position with attractive
growth prospects and a low cost portfolio of assets.
While the recovery has taken markets from
undervalued to fairly valued, we also believe risk level
has come down with some stabilization in global
economic growth expectations, stronger energy prices
and accommodative fiscal policies. The June 23rd UK
referendum and the July 18-21 U.S. Republican
convention are approaching which may create some
ripples in the markets. We continue to focus on
companies with reasonable valuation levels, strong
financial positions and sustainable dividends.
Corinne Fuhr-Hughes
Sr. Wealth Advisor, Director Wealth
Management
corinne.fuhr-hughes@
scotiawealth.com
Telephone: 780.413.7454
Rene Welz
Wealth Advisor
rene.welz@
scotiawealth.com
Telephone: 780.497.3232
Follow Rene on:
Investor’s Corner
This week we are pleased to announce our newly
redesigned website! If you have a moment, please visit
it and provide us with any feedback or comments you
may have.
We are delighted to share with you our bold new look
and enhanced navigation experience. To start, we’ve
streamed lined our menus to give you quick access to
the items you’re looking for:
Aaron Kehr
Investment Associate
Telephone: 780.413.7471
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Our ‘Team menu’ showcases information on all
of our team members and the unique
attributes that they bring to our Wealth
Management proposition.
The ‘Services menu’ offers an oversight to our
Wealth Management approach and details our
commitment that we offer our valued clients.
We are excited to share our ‘News menu’ which
offers the latest insights, as well as our
‘Research & Reports’ section which shares indepth market views as well as commentary
reports that are updated on a daily basis for the
latest and timely information.
With a few more options to enjoy and rather
than telling you about them, why not take a
tour now on the link provided and share your
thoughts with us.
http://thefuhrhughesteam.ca/your-team/
Canadian Equity Recommendations
Brompton Oil Split Corp. We believe the outlook for
the sector is improving and we plan to start gradually
adding to the sector. To achieve diversification as we
build into the energy sector, we recommend Brompton
Oil Split Corp. See details below:
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Approximately equal-weight portfolio of at
least 15 large-capitalization North American oil
and gas issuers. Focus is primarily on large
capitalization issuers with significant exposure
to a potential rebound in oil prices.
Due to the unique nature of this
investment and leverage as a result of the split
share structure, a thorough discussion is
required.
Portfolio securities are S&P/TSX
Composite Index or S&P 500 Index constituents
which have a market capitalization of at least
$2
billion (portfolio
average market
capitalization is $49 billion) and pay a dividend
(portfolio weighted average dividend yield is
Cheryl Garth
Administrative Assistant
Telephone: 780.413.4349
The Fuhr-Hughes Team
2300, 10104 - 103 Ave
Bell Tower
Edmonton, AB, T5J 0H8
Telephone: 780.413.7454
Toll-Free: 1.888.814.4223
Fax:
780.413.7477
3.5%*)
Top 10 Holdings % of Portfolio
Valero Energy
8.1%
Corp.
Chevron Corp.
7.4%
Occidental
7.1%
Petroleum
Corporation
Pioneer Natural 7.1%
Resources Co.
Exxon Mobil
7.1%
Corporation
Suncor Energy Inc. 6.6%
EOG Resources 6.5%
Inc.
Keyera Corp.
6.5%
Canadian Natural 6.3%
Resources Limited
Crescent Point
6.0%
Energy Corp.
Total
68.7%
Shaw Communications (SJR.B) – we believe the stock
offers an attractive risk/reward profile and an
attractive dividend yield of 5.04%*.
Shaw recently closed the acquisition of WIND Mobile,
shifting its operating profile to one that is more
consistent with its larger Canadian peers and, based on
Scotiabank GBM analysis, positioning Shaw as a growth
story in the years to come. To finance the acquisition,
Shaw is selling its media business to Corus
Entertainment, slated to close on April 1, 2016.
SJR.B trades at 14.2x earnings. NTM consensus EPS
while offering an attractive dividend yield of 5.04%*.
The Bloomberg consensus ratings are six buys, seven
holds and one sell recommendation with a consensus
target price of $26.68.
Agrium (AGU) – we believe the underperformance YTD
has presented an attractive opportunity to buy.
We attribute the underperformance to flat commodity
prices (corn, wheat, soybeans), as well as weak
fertilizer demands due to excess global supply. In
addition, we believe that AGU’s status as a safe-haven
within the Materials sector has also contributed to the
underperformance as investors use it as a source of
cash in order to move back into precious and base
metal stocks.
Soft commodities have improved from the lows in
February, increasing the likelihood that farmers will
increase planted acreage from the depressed levels in
2015. Farmer economics should also be helped by
lower energy prices.
We also like AGU’s extensive retail network, which
provides stability to AGU’s revenue and profitability
compared with most of AGU’s peers that primarily
operate wholesale fertilizer businesses. The retail
segment now represents 77% of total revenue, which
is up from less than 50% in 2007. We believe that AGU
will continue to utilize free cash flow to buy back
shares and also expect to see a dividend increase later
this year.
The stock is trading at a forward P/E of 12.7x while
offering a sustainable dividend yield of 4.18%*, which
we believe represents attractive value.
The Bloomberg consensus ratings are 12 buys, 11
holds, and one sell recommendation with a consensus
target price of C$127.63.
Boardwalk (BEI.UN) – we view this company as an
attractive and defensive oil proxy with current yield of
5.99%
With almost 80% of this apartment REIT’s net
operating income attributable to the energydependent provinces of Alberta and Saskatchewan,
BEI.UN’s unit price has been under pressure since late
2014.
While the units have performed well since midFebruary, we believe the outlook remains attractive.
BEI.UN is trading at an approximate 10% discount to its
NAV, based on Scotiabank GBM estimates, and its
balance sheet is one of the most conservative in the
Canadian REIT sector. (39% debt/gross book value), as
is its AFFO payout ratio, which is approximately 72%
based on Scotiabank GBM estimates.
We view BEI.UN as an attractive alternative for a
dividend focused investor with upside potential in the
event of an oil price recovery.
The Bloomberg consensus ratings are seven buys, four
holds, and one sell recommendation with a consensus
target price of C$58.05.
Portfolio Updates
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Magna (MG): We continue to believe the
strength in the auto sector may begin to wane
given the length of the cycle and that the auto
parts companies have seen the peak in margins
and that earnings growth going forward may
begin to moderate. As such, we plan to remove
the last of the MG positions in the portfolios.
We believe we can exit the positions at higher
prices (closer to $60), as the recently improved
market sentiment and stabilization in global
growth forecasts may provide a near-term lift
to auto sales and related industries.
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Walt Disney’s (DIS) “The Jungle Book”
won the weekend box office by a wide margin,
taking in $103.6 million in North American
ticket sales and raking as the second best ever
April opening. We continue to have a positive
view of DIS and believe the risk/reward profile
is attractive with the shares trading at a
discount valuation. Hold this position.
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Atco Ltd. (ACO/x) – Announced the
expansion of its international modular
structures business by acquiring 50% ownership
of Sabinco Soluciones Modulares S.A. (Sabinco)
from Sitrans Servicios Integrados de Tranportes
Ltda. (Sitrans), which will retain 50% ownership
of the company. The transaction re-establishes
ATCO’s presence in the South American
market. Headquartered in Santiago, Chile,
Sabinco’s fleet of nearly 2,500 space rental and
workforce housing units accounts for
approximately 10% of the Chilean market.
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Bank of Nova Scotia (BNS) – Announced
the sale of Roynat Lease Finance, a division of
BNS’ wholly-owned subsidiary Roynat Inc., to
Meridian Credit Union Limited, Ontario’s
largest credit union. The transaction is subject
to regulatory approval and is expected to close
in the second quarter of 2016. The transaction
is immaterial to Scotiabank. Roynat Lease
Finance provides customized commercial
equipment leasing solutions with a specific
focus on the small to mid-ticket market and had
a portfolio of leases valued at approximately
$910M at the end of 2015. In explaining the
sale, BNS said the lease finance business was
not core to Roynat’s offering.
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Gibson Energy Inc. (GEI) - Announced a
new management structure resulting in a
headcount reduction, including elimination of
approximately 20% of executive level positions.
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General Motors (GM) reported strong first
quarter results with adjusted EPS of $1.26,
$0.26 better than the consensus estimate as
revenue rose 4.5% to $$37.3 billion, also
beating the consensus estimate of $34.55
billion.
* All Dividend Yields as of April 21, 2016*
Please do not hesitate to call Corinne or René if you
are feeling concerned or have questions about recent
market volatility or your portfolio.
Regards,
Corinne and René
The Fuhr-Hughes Team