Gavin Graham.Kevin Van Paassen/The Globe and Mail
Gavin Graham is chief strategy officer of Integris Pension Management Corp. His focus is on global equities and North American large-cap stocks.
Top Picks:
Loews
Loews is a long established U.S. conglomerate run by the Tisch family. Its primary businesses are property and casualty insurance (80-per-cent ownership of listed CNA Financial Corp.), pipelines, offshore oil drilling (Diamond Offshore), oil and gas and hotels. It sells at a 10-per-cent discount to its book value and is experiencing improving conditions in insurance, drilling and hotels.
Copa Airlines
Copa is a Panamanian airline operating a modern fleet of 83 Boeing 737-700s and 800s and Embraer 190s from its base in Panama City, from which it provides one-stop flights to the largest number of destinations in Central and South America including eight U.S. cities and Toronto. It is a member of the Star Alliance and owns the second-largest airline in Colombia. Selling at 12 times 2013 earnings and a 2.1-per-cent dividend yield, it is a play on rising incomes within Latin America as more passengers begin flying.
iShares S&P Global Water Fund ETF
An ETF invested 50-per-cent in water utilities and 50-per-cent in companies producing equipment for the water industry, such as valves, pumps, pipes, filters, meters etc. Its largest holdings include Pentair, Gerberit, Alfa Laval and Danaher. The water industry is a $500-billion business growing 7 per cent per year or twice global GDP, as the emerging markets urbanize and aging infrastructure in the developed world needs to be replaced. While only having $30-million in assets under management, the ETF has been going for over five years, has a reasonable 0.67-per-cent MER and has raised its dividend by 7.6-per-cent per year over the last five years, giving it a trailing 2.2-per-cent yield.
Past Picks: October 1, 2012
Unilever
Then: $36.68
Now: $39.29
Total return: +10.76 per cent
WestJet
Then: $17.51
Now: $23.28
Total return: +34.70 per cent
Linamar
Then: $20.94
Now: $32.80
Total return: +58.55 per cent
Total return average: +34.67 per cent
Market outlook:
The stock markets in North America have risen strongly, reflecting moderate but improving GDP growth in the U.S., Japan, the U.K. and even in Europe, which has just emerged from six quarters of recession in the second quarter. As a result, valuations are looking somewhat expensive, especially given that 10-year bond yields have risen by over 1 per cent in the last few months on the expectation that the Federal Reserve will begin to reduce its quantitative easing purchases of $85-billion (U.S.) of bonds a month. Investors should be looking to take some profits, but maintain an exposure to cyclical stocks such as autos, capital equipment, consumer durables and materials while reducing interest rate sensitive plays.