David Burrows is president and chief investment strategist of Barometer Capital Management. His focus is on North American large caps.
Matador is a growth-oriented oil and gas producer based in both the Permian and Eagle Ford basins. With an excellent drilling success rate and a steadily improving cost structure for finding and bringing new reserves to production, their $440-million (U.S.) budget for new wells in 2014 is likely to move them well along their way to doubling production over the next two years. Going forward, Matador has over ten years of drilling targets identified, giving them a long runway for reserve and production growth.
After many years of market underperformance, new management, an evolving business model and activist investors are spurring positive change at this mega-cap software and consumer electronics company. Recent efforts to move from a software licensing business model to a cloud-based subscription model appear to be gaining momentum. In addition, a pick-up in corporate spending and an upgrade cycle should lead to improved profitability and higher market valuation.
United Technologies Corp.
As a $100-billion (U.S.) industrial conglomerate, United Technologies represents exposure for investors to two key leading sectors: secular growth in aerospace through subsidiary Pratt and Whitney, and to the new capital spending cycle in non-residential construction sector through Otis Elevators, security and climate control divisions. While, up to now, cost-cutting and aerospace have generated improved earnings, an improvement in the U.S. and European economies should provide a ramp in earnings going forward.
Past Picks: April 9, 2013
Then: $57.60 (Cdn); Now: $69.99 +21.51%; Total return: +26.22%
Merck & Co.
Then: $45.51 (U.S.); Now: $56.47 +24.08%; Total return: +28.48%
Then: $48.31 (U.S.); Now: $66.37 +37.38%; Total return: +40.43%
Total return average: +31.71%
"Now" figures are intraday from the date of the analyst's appearance on BNN Market Call.
Barometer Capital Management continues to believe that we are in the midst of a new secular bull market for equities, likely to extend for several years. Barometer's funds and separately-managed accounts continue to be focused on stocks and sectors that should provide above-average dividend growth, and that benefit from low inflation and slowly improving developed market economies. Sector leadership currently includes energy, energy infrastructure, financials, technology, health care and industrials. Barometer's process highlights the likelihood that investors will continue to migrate from more expensive fixed income (bond) investments to more attractive total returns available in the equity asset class for an extended period of time.