Nick Majendie is portfolio adviser at ScotiaMcleod's Anchor Funds. His focus is Canadian large caps.
Brookfield Energy Partners (BEP.UN-TSX)
Global renewable installed capacity is growing by about $200-billion of new supply a year. Brookfield Energy Partners has $17-billion of assets in 3 countries and allows investors to participate in this trend. The company has a target of increasing cash flow and distributions by 3-5 per cent per year, which we think will prove conservative over the next five years on the basis of redeployment of half a billion dollars of incremental capital and M&A opportunities. The stock is low risk since over 90 per cent of 2014 cash flow is contracted and at least 80 per cent is contracted through 2018.
Fortis Inc. (FTS-TSX)
Based on interviews with Fortis management, we believe the EPS and dividend per share growth will be in the 6 per cent area in the 2015-2018 time frame based on their two U.S. acquisitions in New York and Arizona (the latter likely to be approved in Q4) and additional rate base growth in its Canadian operations as well as the startup of the Waneta Expansion project in B.C.
Brookfield Property Partners (BPY.UN-TSX)
In early December, we completed a switch out of Brookfield Office Properties (BPO) into Brookfield Property Partners (BPY.UN). We already owned BPO which had jumped by over 15 per cent when BPY announced its offer for BPO. Also, in Q4, BPY announced that it had substantially increased its ownership in General Growth Properties to 32 per cent. Returns on GGP, the second largest mall operator in the U.S., are expected to exceed BPY's 12-15-per-cent targeted return range. Completion of the BPO transaction in June will increase the public float to about 33 per cent – big enough to attract institutional investors and improve the valuation of BPY, which is currently at a substantial discount to U.S. peers. BPY's mission is to be the leading globally diversified owner and operator of high quality real estate assets with the objective of earning a 20-per-cent per annum return for investors over the next five years. BPY.UN's current dividend yields 5.1 per cent and we expect the distribution to grow by at least 4 per cent a year.
Past Picks: April 23, 2013
Baytex Energy (BTE-TSX)
Then: $38.65; Now: $45.64 +18.09%; Total return: +26.48%
H&R REIT (HR.UN-TSX)
Then: $23.91; Now: $23.10 -3.39%; Total return: +2.81%
Shoppers Drug Mart (SC-TSX) Acquired by L-T on April 1, 2014. Figures below as at March 31, 2014
We sold Shoppers Drug Mart the day after the bid by Loblaw Cos. Ltd. was announced last summer – at a price of $61.30. We thought the bid reflected full value at the time and our purchase cost was $41 and so we wanted to crystallize our profits.
Then: $44.60; March 31, 2014: $60.93 +36.61%; Total return: +39.41%
"Now" figures are intraday from the date of the analyst's appearance on BNN Market Call.
Total return average: +22.90%
Our projection for the TSX is that it should provide a high single-digit total return for the balance of this year, on top of the strong gains achieved so far, while the S&P 500 is likely to have a total return around zero from this point. In our view, U.S. economic growth will be lower rather than higher than consensus while the opposite is likely to be the case for Canadian GDP since, as a strong exporting country, Canada will benefit from the recent slide in the Canadian dollar. We have also warned that the up cycle is well advanced so that investors should be prepared to be more defensive as the year develops. Generally speaking, Q1 2014 turned out to be a stronger start to the year than we had projected. However, in mid-term congressional years, Q2 and Q3 have on average seen a degree of correction over the last 50 years while Q4 has on average shown very robust returns as the political uncertainty dissipates.