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3 top picks from Leon Frazer’s Douglas Kee

Douglas Kee is the managing director and chief investment officer for Leon Frazer & Associates. His focus is on Canadian dividend-paying stocks.

Market Outlook

We continue to believe that the Canadian stock market is stuck in a trading range from S&P/TSX 11,000 to 14,000.

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We're fairly confident that the low side will not be breached, but what can get us out on the upside is questionable. The largest sectors in the market are financials, materials and energy, none of which have upside momentum at this time. We would recommend staying with dividend-growing stocks as an alternative to cash or low yielding bonds.

Past Picks: July 21, 2011

Bank of Montreal

Then: $61.59
Now: $57.47
TR: -2.18 per cent

Goldcorp Inc.

Then: $50.18
Now: $33.65
TR: -32.15 per cent

Shoppers Drug Mart Corp.

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Then: $40.90
Now: $42.09
TR: +5.47 per cent

Total Return Average: -9.62 per cent

Top Picks:

Cenovus Energy Inc.

Company is a low cost oil sands producer with growing assets at Christina Lake and Foster Creek.

As well, the company has other potential oil sands development. The company is essentially hedged on the natural gas side and participates through a joint venture on the refining and marketing end of the energy business.

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Stock currently yields 2.6 per cent. The company did increase its dividend 10 per cent this year, with additional dividend growth potential as oil sands capex slows over the next few years.

Teck Resources Ltd.

Teck is a diversified metals company with leverage to met coal, copper and zinc. Teck currently has a low-risk expansion plan underway. The company has a sound balance sheet with the potential (current yield 2.7 per cent) to increase the dividend over time. While we remain underweight in the materials sector, we believe that Teck will benefit from economic growth in Asia.

Bank of Nova Scotia

The Canadian bank sector is very competitive. Scotia's position as the low-cost producer bodes well for market share retention. The 4.3 per cent current yield is attractive.

We see good growth potential through the bank's wealth management business, as well as international operations where margins are higher and not linked to the Canadian economy.

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