Patrick Horan is a principal at Agilith Capital Inc. His focus is on North American equities.
IGM Financial Inc.
IGM is the second-largest independent asset manager in Canada. They reported just on Friday and total mutual fund outflows of $317-million (0.3 per cent of beg. MFA) came in better than street expectations of outflows of $580-million. IG division had outflows of $109-million, improved from $314-million last year, while Mackenzie also made significant year-over-year gains with net redemptions of $223-million compared with $464-million in Q3/12. There have been lots of positive developments since I mentioned the name in January, which we believe bodes well for IGM in 2014 and 2015. Improved fund flows, earnings momentum, more favourable industry conditions are likely to support multiple expansion, Industry trends are looking more favourable for IGM given increased retail investor appetite for U.S. and global equities.
Mitel Networks Corp.
Today Mitel and Aastra announced a definitive agreement with unanimous board approval from both parties under which Mitel will acquire Aastra. Mitel expects to see run-rate synergies of ~$50MM over the next 2 years. The synergies appear very reasonable, if not conservative. The potential synergies from combining products and operations include supply chain optimization, facility consolidation and economies of scale. We believe the stock looks very inexpensive at this valuation, especially if you consider that the synergies will boost the growth rate of earnings by 12-15 per cent over the next two years.
Fortis - Short
The stock continues to trade at the very high end of the market – yet earnings results have been disappointing all year. Earning growth looks flat at best over the next year. The company appears to be tapped out in terms dividend raises, as its payout is very high at 74 per cent. As interest rates rise, the stock will suffer because the tremendous financial leverage to its assets base will have to be re-priced upwards resulting in higher costs/more pressure on earnings.
Past Picks: January 8, 2013
Canaccord Genuity Group
Total return: -14.10 per cent
Total return: +72.08 per cent
IGM Financial Inc.
Total return: +34.60 per cent
Total return average: +30.86 per cent
We continue to believe that we are in a secular bull market and expect improved economic growth in North America will translate into a positive investment environment next year. Moreover, it appears that we are also at the start of a synchronous global growth cycle, which should add to North America's momentum.
Stocks are still inexpensive – especially relative to bonds and are likely to end the year higher than where we are now. There could be some turbulence in early 2014 and the U.S. government negotiations take centre stage again (self-inflicted drama by the dysfunctional U.S. government may add some near term choppiness). We believe the biggest risk to portfolios going forward is inflation. Although this is unlikely to be an issue over the next 12 months, we think investors should be thinking about positioning their portfolios for inflation protection now.