**January 24th Issue of The JMRD Market Observer**

January 27, 2014

 

In This Week’s Market Observer…

 

  • JMRD U.S. Growth Basket Update
  • Pipelines, Utilities & Energy Infrastructure: 2014 outlook: Midstream growth in a league of its own
  • Canadian Real Estate 2014 Outlook: Entering Uncharted Waters for the Canadian REIT Universe
  • Retirement Corner
  • Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

JMRD US Growth Basket

The JMRD Wealth Management Team is excited to announce the launch of our brand new JMRD U.S. Growth Basket.

We are launching the new Basket as we have received numerous requests for a portfolio of US companies that trades in US dollars.  Once again, we have listened to clients and are delighted to deliver this new offering.

We will focus on five questions you may have on the new Basket as a way of introducing it:

  • Who should buy it?
  • How do I buy it?
  • What is in the Basket?
  • How do you pick the holdings?
  • What are the parameters in terms of buying the new Basket?

Who should buy it?

1)

  • Clients who have US dollar accounts are the best candidates for the new Basket as they already have US dollars available
  • Remember, if you don’t have US dollars already, a new buyer would first need to convert to US dollars
  • With the recent weakness in the Loonie, it takes more Canadian dollars to buy US dollars
  • See last week’s Market Observer for an update and forecast on the Loonie going forward

2)

  • Clients who think the Canadian dollar will continue to decline are also good candidates as this is also a currency call
  • For those in this camp, the conversion provides a way to diversify by currency as well

3)

  • The Team is being proactive in this Basket launch as NBF will be rolling out US dollar RSP accounts in the not too distant future
  • The U.S. Growth Basket could be purchased in this new RSP once rolled out

How do I Buy it?

  • The JMRD US Growth Basket is purchased the same way as our other Baskets
  • We would recommend setting up a US dollar account as a start
  • We would need to ‘code’ the account for Basket purchase as per usual – for those interested let us know and we will get the paper work together
  • The Basket is purchased on a fee basis similar to our other offerings

What is in the Basket?

  • We will be featuring company updates on the holdings in up-coming Market Observers so  you can become more familiar with the individual positions
  • Find below, a full snapshot of all holdings

USBasketHoldings

How do you pick the holdings?

  • We use a proprietary relative strength technical analysis research that helps us to identify the stronger sectors to invest in.
  • From there, we look to buy the strongest stocks in the best sectors. Stocks can be trading well but if they are in a strong sector, they can still be underperforming.
  • Conversely, we look to avoid weak sectors as weak sectors and companies within those sectors can often stay weak for an extended period of time.
  • Instead of trying to ‘guess’ when a stock might bottom, we look to identify the strongest companies that are performing well compared to their peers.
  • For the U.S. Model we select among the top companies in the S&P 100 combined with Credit Suisse’s top picks.
  • The requirements are: Minimum $1B market capitalization, no more than two securities per sector and an initially equal weighted portfolio.

What are the parameters in terms of buying the new Basket?

  • The current value of the JMRD U.S. Growth Basket is approximately $10,300 (in US dollars)
  • The initial minimum position mandated by is 5 Baskets, or approximately $51,500
  • Subsequent purchases can be made in increments of 1.5 Baskets, or about $15,500.
  • Note that the minimum and subsequent purchase amounts are mandated by National Bank Financial’s Baskets department rather than by JMRD.

 

Pipelines, Utilities & Energy Infrastructure: 2014 outlook: Midstream growth in a league of its own

 

NBF Pipelines, Utilities & Energy Infrastructure Analyst Pat Kenny released his 2014 outlook report this week. Among his top picks, Gibson Energy and Pembina Pipelines are held in the DIG Basket and Inter Pipeline is held in the All-Cap Growth Basket

2014 outlook: Midstream growth in a league of its own

Highlights

2015 estimates & targets: Our 2015 estimates call for 10% AFFO/sh growth across the group. However, offset by bumping up our 10-year CAD bond rate assumption to 3.5% (was 3.0%), our targets remain flat overall (some up, some down). On average, we forecast a 12-month total return opportunity of 14% (9% capital + 5% cash yield).

Midstream growth in a league of its own: We forecast 11% dividend growth from current levels through 2015, reflecting +5% for the Power and Utilities group and +15% for the Pipelines & Midstream group; led by Outperform-rated ALA (+32%), ENB (+23%), KEY (+21%), IPL (+21%), PPL (+16%), SPB (+15%) and GEI (+12%) – i.e., Pipelines & Midstream dividend growth is clearly in a league of its own.

Debottlenecking oil infrastructure (IPL, GEI, ENB): Exports of Western Canada / Bakken crude oil production are expected to top 4.0 mmbpd in 2014 versus operable pipeline takeaway capacity of ~3.4 mmbpd – supporting urgent demand for more pipeline capacity while sustaining a healthy ‘call on rail’ of 0.5-0.7 mmbpd through 2017. For exposure to attractive oil infrastructure growth, we recommend IPL, GEI and ENB.

The NGL gatekeepers (ALA, KEY, PPL): As producers seek to maximize the value of their liquids-rich production from the Montney, Duvernay and Deep Basin, we expect a long runway of NGL Infrastructure growth opportunities, including fractionation, storage, terminalling and marketing services. We recommend owning ALA, KEY and PPL.

Other notables (SPB, CPX, CU, VSN): SPB is a top pick based our outlook for 2015 including 16% AFFO/sh growth, ~3.0x D/EBITDA and 15% dividend upside. We also recommend Outperform-rated CPX on multiple expansion and 5% dividend growth post commissioning of the $821-mln (net) Shepard project in Q1 2015. We are also upgrading CU to Outperform, viewing the stock as oversold relative to its steady 10% dividend growth profile. Meanwhile, we downgraded VSN to Underperform following ~30% capital appreciation since August 2013 and the stock now pricing in roughly half of our unrisked upside related to the Jordan Cove LNG project.

Top picks: SPB, ALA, GEI, PPL, IPL (see Appendix 3 / 4 for individual stock price catalysts / headwinds)

NBF Pipelines

NBF Thematic Research: CANADIAN REAL ESTATE 2014 OUTLOOK: Entering Uncharted Waters for the Canadian REIT Universe

Following a negative year for Canadian REITS, a timely update on the sector from NBF REIT Analysts Trevor Johnson and Matt Kornack and their outlook for 2014 for the sector.

Event:

2014 Real Estate outlook and top picks.

Key Takeaways:

While interest rate driven volatility is likely to continue into 2014 (for both REITs and the general market alike), at this juncture our bias remains positive for the real estate sector. Today investors can buy REITs that have increased their scale, improved their leverage, payout ratios and property quality and in some cases attained investment grade credit ratings at multiples well below peak levels and in many cases below longer-term historical averages. Fundamentals for the most part remain strong and beyond the real estate itself we believe that an ageing Canadian population with a need for tax efficient income investments will continue to see REITs as an attractive alternative.

While REITs appear generally attractive our top picks in the sector are entities with the ability to generate above average top-line growth through occupancy improvements and/or increases in rental rates. Five of the six have exposure to the United States, which we see as having stronger economic expansion potential (before factoring in the potential for further U.S. dollar appreciation).

Top Picks: American Hotel Properties, Artis, Crombie, HealthLease, Milestone, Tricon

NBF REITs

Week at a Glance

Week at a Glance

Retirement Corner

“Living in Retirement: A champagne cruise on a beer budget” (Globe and Mail)

“Confusion in Canada’s retirement planning landscape standing in the way of change” (Financial Post)

“Retirement delayed: Build wealth by investing in your health” (Globe and Mail)

Reads of the week

“Davis + Henderson: A Canadian play on the U.S. recovery” (Globe and Mail) Davis + Henderson is held in the DIG Basket and pays a 4.46% dividend yield

“Exciting Times for Traders of the Canadian Dollar” (Business Insider)

“Is the Australian and Canadian Dollar Weakness Overdone?” (BCA Research)

“Google Plays Smart Defense by Buying Nest” (Bloomberg)

NBF Hot Charts – Canada: No need for the BoC to cut rates: In Canada, low inflation and disappointing job creation have prompted many to ask whether the Bank of Canada (BoC) will need to ease in 2014. At this writing the OIS market is putting the odds of a rate cut by September at 33%. The question is legitimate, but we think the depreciation of the Canadian dollar is doing the job for the Bank. An old rule of thumb was that a 10% depreciation of the Canadian dollar would add 1.5% to GDP over time. That was when the penetration of Canadian exports in the U.S. market was stronger. Our share of U.S. imports has been declining since even before the last recession. Moreover, Canadian manufacturing capacity has shrunk as producers have restructured their operations in the wake of the Great Recession. So that rule of thumb is surely too optimistic by now. Yet even if the impact of the exchange rate on the economy were only a third of what it used to be, the 9.5% drop in the effective exchange rate since January 2013, if sustained, would over time add 0.4% to GDP. As today’s Hot Chart shows, that is probably as large a boost to the economy as would be expected from a BoC rate cut of 50 to 75 basis points.

Hot Charts

Economic Calendar

Monday January 27th – US New Home Sales

Tuesday January 28th – US Durable Goods Orders

Wednesday January 29th – US FED Interest Rate Decision

Thursday January 30th – US GDP, US Initial Jobless Claims, US Pending Home Sales

Friday January 31st – Canadian GDP; US Personal Spending, US Chicago PMI, U. Of Michigan Consumer Confidence.

Earnings Reports

Monday January 27th – Apple, Caterpillar,

Tuesday January 28th – Metro Inc., AT&T, Ford, DuPont, Pfizer, Yahoo!

Wednesday January 29th – AGF, CGI Group, Methanex, Boeing, Facebook, Dow Chemical, Qualcomm

Thursday January 30th – CN Rail, Canadian Oil Sands, Potash, Norbord, Imperial Oil, 3M, Amazon, Altria, Exxon Mobile, Google, Raytheon, UPS, Visa,

Friday January 31st – MasterCard, Chevron

Categorised in: