Jeff Young is co-CEO & CIO of NexGen Financial. His focus is on Canadian dividend stocks.
Top Picks:
IGM Financial (IGM TSX)
IGM Financial is benefiting from rising equity markets and improved investment performance at both Investors Group and Mackenzie. This is leading to improving net sales trends which may have reached a positive inflection point. Under the new CEO, Mackenzie is focused on creating new investment products for both the retail and institutional marketplaces while Investors Group continues to have success growing its consultant network. The stock yields over 4 per cent and should see earnings grow over 10 per cent in 2014.
SNC-Lavalin (SNC TSX)
The company continues to repair itself from the scandals of the last several years and is close to working through several unprofitable legacy contracts. The company's valuation is underpinned by its concession assets with very little value being ascribed to its engineering and construction business. While it may take more time for the company to repair its core business, they continue to move in the right direction. The prudent use of proceeds from the recently negotiated AltaLink sale will be critical to the medium term path of the company.
Baytex Energy (BTE TSX)
Baytex is a high quality, primarily heavy, oil producer operating in Canada and the U.S. It has a long history as a top quality operator and has managed the volatile heavy oil differentials well through a crude-by-rail strategy. They recently did a cash flow accretive acquisition in the U.S. Eagle Ford which geographically diversifies the company and significantly enhances their light oil production. Expected production per share growth in the low single digits combined with a 6.3-per-cent yield, increased product diversification and the potential for lower heavy oil differentials makes Baytex an attractive holding.
Past Picks: May 17, 2013
Agrium (AGU TSX)
Then: $93.84; Now: $98.65 +5.13%; Total return: +8.38%
Twin Butte Energy (TBE TSX)
Then: $2.32; Now: $1.87 -19.40%; Total return: -11.91%
CanElson Drilling (CDI TSX)
Then: $5.06; Now: $7.71 +52.37%; Total return: +58.58%
Total return average: +18.35%
Market outlook:
Equity markets are going through a consolidation phase with last year's leaders correcting in favour of both defensive and resource-related stocks. Investors continue to grapple with the lower-than-expected level of economic growth for Q1 of 2014 as it remains uncertain as to how much of the weakness relates to the harsh winter weather and will prove temporary in nature. Bonds and high-yielding equities have fared better than expected as interest rates have recently reversed some of last year's gains on slower growth and a reassessment around the timing on central bank tightening. We expect to see an improvement in economic growth, a firming of bond yields and a continued strength in the equity markets as the year continues.