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Three top picks from CastleMoore’s Hap Sneddon

Hap Sneddon is portfolio manager and technical analyst at CastleMoore. His focus is on technical analysis and macro portfolio strategy.

Top Picks:

Pembina Pipeline Corp. (PPL TSX)

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Pembina is a recent purchase based on technical signals post-earnings where Q2 EBITDA of $235-million was 10 per cent ahead of consensus analyst expectations.

The security is in a seasonal sweet spot with strong impulses from energy, infrastructure and utilities or sectors that chug along against the back drop of seasonally broader market (index) weakness. With distributions expected to rise in 2015, $5-billion in secured growth projects and another $2-billion expected, this top quality holding has a strong intermediate-term trend.

iShares S&P/TSX Global Gold Index ETF (XGD TSX)

Gold producers are currently being valued at much lower gold bullion prices. Combined with the technical picture of high highs and higher lows since December, 2013, and a strong period of seasonality, present levels offer excellent risk to reward. Historically, gold producers lead a move in the price of bullion and would be supported during any broader market weakness. A break of the ETF for two weeks below $12 would nullify the investment.

Fortis Inc. (FTS TSX)

Not only is Fortis in a timely sector now (utilities) but it also has a fortress balance sheet. The recent $4.3-billion (U.S.) acquisition of Arizona-based UNS Energy has been approved by the U.S. Federal Energy Regulatory Commission. This comes amidst other existing asset expansions, and should begin to hit the bottom line in 2015. The company has 90 per cent of its business regulated, a lower-than-average payout ratio, and interest rate tailwinds. Not exciting yes, but vanilla is a great flavour.

Past Picks: September 18, 2013

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AbbVie Inc. (ABBV NYSE)

Then: $47.92; Now: $55.70 +16.24%; Total return: +20.17%

BCE Inc. (BCE TSX)

Then: $43.65; Now: $48.85 +11.91%; Total return: +16.25%

Fortis Inc. (FTS TSX)

Then: $30.88; Now: $33.31 +7.87%; Total return: +12.23%

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Total return average: +16.22%

Market outlook:

At present, market indexes are in a short-term bounce off the lows of early August, but are rather quickly reaching an overbought condition based on many indicators, including RSI. Overbought conditions have meant little in providing meaningful investment caution since 2011 as corrections have been in the 3 to 5 per cent range. More important now in sector and asset allocation decisions are the corporate earnings guidance and GDP print for H2, the weakness in the Russell 2000 (a 5½ year leader) when other indexes have touched new highs and the lack of known catalysts on the horizon. Too, a break below 2.40 per cent on the U.S. 10-year Treasury and below 1 per cent on the German bund suggest deflation or counter-cyclical impulses favouring utilities, consumer staples, pipelines and gold bullion.

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