Equiton’s Chief Investment Officer in the Financial PostJanuary 9, 2019
Equiton’s Chief Investment Officer and Head Portfolio Manager, Greg Placidi, weighs in on top stocks for 2019. Read what he has to say in the Financial Post.
Originally Published: Financial Post. “Ten stocks for 2019: What the pros are picking to outperform this year.” Victor Ferreira. 31 December 2018. Web: https://business.financialpost.com/investing/stocks-outlook?video_autoplay=true
Ten stocks for 2019: What the pros are picking to outperform this year
Some picks may be counterintuitive, some anticipated. Here's why you might want to get on board
The bull market ran into a brick wall in 2018, but that doesn’t mean investors should abandon equities just yet. With a new year dawning, the Financial Post asked 10 prominent portfolio managers and strategists to pick a single stock they feel has a good chance to outperform in 2019.
The Stock: Pure Multi-Family REIT (TSV/RUF-U)
It’s defensive, it’s in high-growth U.S. markets, and most important, it’s “very, very cheap.” Those are the factors that make Pure Multi-Family REIT a buy for Jeff Olin, president and portfolio manager at Vision Capital Corp., in 2019. Pure trades on the TSX Venture Exchange but exclusively owns class A apartments in U.S. sunbelt markets such as Dallas, Houston, Phoenix and Austin. Those four are among North America’s top cities for employment growth, he said, which is important in real estate investing because more jobs often means more housing is required. “Everybody needs a place to live,” said Olin, adding that REITs in general can be a balm for volatility in global markets. What makes the Pure Multi-Family REIT special, Olin said, is that unlike other apartment REITs on the market, it isn’t trading at a premium to its net asset value. “This one you can buy at a discount,” he said. Shares of Pure closed Friday at $8.21.
The Stock: NXP Semiconductors NV (NASDAQ/NXPI)
Shares of NXP Semiconductors NV were victims of a failed takeover bid from Qualcomm Inc. in 2018, and have fallen 26 per cent since the deal was vetoed by the Chinese government in July. That fall in value has drawn the interest of Norman Levine, managing director of Portfolio Management Corp. “We think it’s greatly undervalued because of the people who bought it just for the takeover and said, ‘Get me out’,” Levine said. NXP, he said, remains a takeover candidate in 2019 because, “if this was attractive to Qualcomm, it’s probably attractive to someone else.” Being a takeover candidate alone, however, wouldn’t be enough to convince Levine, a value investor, to jump on board. What really drew his attention is that NXP has remained relatively cheap while seeing its earnings grow and setting itself up to benefit from a growing automotive electronics market. Shares of the Dutch semiconductor producer closed Friday at US$72.13, well below the US$127.50 Qualcomm was willing to pay.
The Stock: Bank of America Corp. (NYSE/BAC)
Investors are positioning for a recession and an inverted yield curve, according to Brian Belski, chief investment strategist at BMO Capital Markets, and, he said, neither one is going to happen. Belski is bullish on 2019 and as a result is investing in Bank of America Corp. There’s a “generational opportunity” to invest in the banking sector, which investors often turn to when interest rates are rising but are risky when markets are slowing down. Bank of America hit its 52-week low — US$22.66 — on Dec. 24, a 31 per cent drop from a high of US$33.05 earlier in the year. “U.S. banks are uniformly hated, feared around the marketplace,” said Belski, but he’s not adding to the pile-on because “you have to buy when there’s blood in the streets … if you have fundamentals to back it up.” For Bank of America, those fundamentals, he said, are consistent cash flow, earnings and dividend growth. The stock closed at US$24.51 on Friday.
The Stock: Apple Inc. (NASDAQ/APPL)
Investors who own Apple Inc. are going to benefit from two bumps to the stock in 2019, Greg Placidi, chief investment officer of Equiton Inc., predicts: One in the first half of the year, when he expects a conclusion to the U.S.-China trade war; and another in the second half, when the analyst community re-learns how to track the company. Apple has lost more than US$250 billion in market cap since the beginning of November — with shares plunging more than 29 per cent to close Friday at US$156.23 — as analysts responded to its decision to no longer disclose iPhone sales numbers by lowering target prices across the board. In Placidi’s view, analyst comfort levels changed because they no longer had the same tools at their disposal, and will have to learn to draw their conclusions in another way. Headlines suggesting Apple may have to move iPhone production out of China because of heavy tariffs are only adding to the sour sentiment, he said. None of that deters his belief that a rally is on the way. “There’s nobody really sitting next to them that’s going to be able to unseat them,” he said.
The Stock: Enbridge Inc. (TSX/ENB)
Joel Clark, CEO and portfolio manager of KJ Investments, says the economy is weakening, and with interest rates rolling over, too, he’s playing defence. Enbridge Inc. is a good choice for investors who want to transition their portfolios toward a defensive mindset, he said, because it’s a utility stock, which are known for outperforming most other sectors when markets slow. Enbridge also has a near seven per cent dividend yield, having announced in December that it would be boosting it to $2.95 per share annually. Closing at $42.16 on Friday, the stock is down about 16 per cent year-to-date — but that only means it’s now a value stock with further room to grow next year, Clark said. That growth may get an additional boost in the second half of the year if the company’s Line 3 pipeline replacement is completed as expected, something that can never hurt in pipeline-starved Canada.
The Stock: Aurania Resources (TSXV/ARU)
“It’s either going to be a hit or wash out.” That’s how David MacNicol, president and portfolio manager of MacNicol & Associates, assesses the prospects of Aurania Resources, a junior mining company based in Ecuador. MacNicol is leaning toward the former because, with the market taking a defensive stance, he’s betting that investors will once again return to gold as a safe haven. Aurania has been narrowing down more than 200,000 hectares of unexplored land in Ecuador in search of the lost cities of Logrono de los Caballeros and Sevilla del Oro, two legendary cities known for their gold deposits. MacNicol admits the stock, which has been nearly flat year-to-date and closed Friday at $2.80, is “highly speculative” but could see its value double if the lost cities project is successful in 2019.
For the past couple of years, Picton Mahoney Asset Management portfolio manager Michael White has been telling investors to steer clear of Alimentation Couche-Tard Inc. Now, he can’t recommend investing in the convenience store chain fast enough. The company had seen its organic growth decelerate for multiple quarters in a row despite an aggressive M&A strategy. White’s concerns dissipated this year. While the company’s stock underperformed between March and July, trading between $52 and $55, it took off in late October and is now trading above $67.85. “Positive change often begets positive share price momentum,” White said. That inflection came with a “sharp reversal” in same-stores sales and organic sales growth on the heels of the acquisitions and successful integrations of CST Brands and Holiday. Convenience stores also function as a defensive choice for investors when markets are struggling, White said.
The Stock: Maxar Technologies Ltd. (TSX/MAXR)
Maxar Technologies Ltd. “was a star company” on Bay Street, Penderfund Capital Management associate portfolio manager Amar Pandya said — and then it was targeted by short sellers in 2018. Spruce Point Capital Management accused the space-tech company of “overcapitalizing costs by inflating intangible asset purchases.” To make matters worse, the company reported an earnings miss for the third quarter, which immediately resulted in its stock cratering. Since the beginning of the year, Maxar’s stock has lost about 80 per cent of its value and closed Friday at $16.07. The stock’s performance has chased away investors — and that’s why Pandya thinks it’s attractive. Good news may be on the way in 2019 as the company is becoming U.S.-domiciled, which opens up opportunities to bid on larger U.S. defence contracts. Pandya said he also believes that Maxar will either wind down or sell its struggling GEO satellite production business, which management blamed for the earnings miss. “It’s the perfect setup, right?” Pandya said.
Izet Elmazi — Bristol Gate Capital Partners
The Stock: Dollarama Inc. (TSX/DOL)
Dollarama Inc. is close to reaching its floor after being targeted by short sellers, Bristol Gate Capital Partners senior portfolio manager Izet Elmazi said, and it’s offering investors an opportunity to buy low. On Oct. 31, Spruce Point Capital Management predicted Dollarama’s stock would drop 40 per cent because customers would push back over recent price hikes and the chain would not be able to keep the same level of profitability. The stock has since dropped about 13 per cent and closed Friday at $31.67. Elmazi expects Dollarama to introduce $5 price points as similar chains in the U.S. — Family Dollar and Dollar General — have done, but instead of suffering, he thinks it will improve their gross profit. Instead of making 40 per cent of a $1 item, a $5 price point would see them earn $2 for every sale. Same-store traffic, which declined in the last two quarters of 2018, concerns Elmazi. The fact that sales are up, however, may instead point to a trend of customers making fewer trips but leaving with fuller baskets. Growing sales would naturally lead to more stores opening — 60 per year over the next five years, Elmazi hopes — which has led him to believe the stock has a 60 per cent upside.
The Stock: Trinity Industries Inc. (NYSE/TRN)
Trinity Industries Inc. is flying below the radar for most investors, IBV Capital president and CEO Talbot Babineau said, and that’s partly why the company is so interesting to him. The mid-cap firm is the largest purchaser of rolled steel in North America, Babineau said, and uses it to manufacture 40 per cent of the continent’s rail cars. In November, the company split into two and the branch of Trinity that was focused on producing other infrastructure products became Arcosa, Inc. The split savaged Trinity’s stock, resulting in more than a 27 per cent drop from its 52-week high in October to its Friday close at US$20.43. Babineau thinks the company is poised to recover from its stock drop in 2019 and that rise may begin with its plan to raise US$360 million in debt to conduct an accelerated share repurchase program. Trinity may also benefit from the government of Alberta’s plans to spend $350 million on 7,000 tank cars, Babineau said. Investors may also be drawn to the company for defensive purposes: Trinity’s rail-car leasing program “acts like one big bond portfolio,” said Babineau, who added IBV Capital’s portfolio switched to defence more than a year and a half ago.
Or you can read about it directly from the Financial Post website.