**May 2nd Issue of The JMRD Market Observer**

May 2, 2014

In This Week’s Market Observer…

   JMRD U.S. Basket update

  •  Ontario Budget 2014: Higher interim deficits, but still aiming for a balanced budget in 2017-18
  •  JMRD Basket Corner
  •  Retirement Corner
  •  Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

 JMRD U.S. Growth Basket Update

The JMRD Wealth Management Team is excited to announce the very first update for our recently launched JMRD U.S. Growth Basket.  We launched the new US Basket as we have received numerous requests for a portfolio of US companies that trades in US dollars.  A number of last year’s winners in the U.S. market, specifically growth and momentum stocks such as Amazon.Com, Tesla, Netflix and Twitter have seen 20-40% selloffs this year. Companies that were seen as more ‘value’ investments have seen better performance, including sectors such as consumer staples and utilities. The concern at the start of 2014 was for interest rates to move higher and the resulting impact that higher rates would have on interest-sensitive stocks.  This has not occurred so far this year – interest-sensitive stocks had a very strong Q1 while financials have traded flat.

 

Apple, the largest company in the Nasdaq, with a nearly $500M market cap, is up 5.5% in 2014 at the time of writing, after underperforming the Nasdaq index by about 33% in 2013.  Despite this, the Nasdaq is down 1.75% in 2014. Similar to Canada, energy has been a strong sector up 6% in the U.S. although the return lags the Canadian Energy sector, which is up 16.58%. We do not own U.S. Energy stocks in the Basket as we have exposure to the sector in our Canadian baskets. Below we will review the new offering in general terms as well as provide a performance update and a snapshot of current holdings.

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

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
  • Basket

We pleased to announce that as of the end of April the JMRD U.S. Growth Basket was up 5.11%.

Note that over the same period, the Dow Jones Industrial Average was essentially flat at 0.03%, the S&P 500 was up 1.93% and the NASDAQ posted -1.49%.

4) 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.

 5) 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.

Ontario Budget 2014: Higher interim deficits, but still aiming for a balanced budget in 2017-18

Highlights:

• The Ontario government expects the 2013-14 deficit to come in at $11.3 billion (1.6% of GDP and 9.8% of revenue), $400 million less than was projected in last year’s budget and in the last Fall Economic statement.

• The deficit for the current fiscal year is projected at $12.5 billion (10.5% of revenues), $2.4 billion over last year’s budget. The following two years also show thicker red ink than budgeted last year. Despite these revisions, a balanced budget is still projected for 2017-18.

• Real GDP, estimated to have grown 1.3% in 2013, is expected to grow 2.1% in 2014, 2.5% in 2015 and 2016, and 2.6% in 2017. Nominal GDP growth, estimated at 2.7% in 2013, is projected to grow at 3.5% in 2014, 4.4% in 2015 and 2016 and 4.6% in 2017.

• Increased tax rate on personal incomes exceeding $150,000.

• The tobacco tax rate is increased from 12.35 cents per cigarette to 13.975 cents, effective today.

• Average annual program expense growth from 2013-14 to 2016-17 capped at 1.1%.

• The new 10-year infrastructure investments plan amounts to $130 billion, of which $29 billion is for transportation, public transit and other priority projects.

• Implementation of the Ontario Retirement Pension Plan scheduled for 2017.

• Net debt-to-GDP ratio estimated at 38.9% at the end of 2013-14, projected to peak at 40.8% in 2015-16, and then to decline to 39.7% in 2017-18.

• Long-term public borrowing in 2013-14 was $36 billion, $2.6 billion more than budgeted due to preborrowing for 2014-15. Consequently, the borrowing for 2014-15 is reduced to $35 billion.

Ontario Budget 2014

JMRD Basket Corner

DIG Basket

Gibson Energy (GEI) – Gibson announced that it has received committed support, from a new customer, for two 300,000 barrel crude oil storage tanks at the Company's Hardisty Terminal. The two additional tanks contribute to a total of six new tanks being constructed at Hardisty, increasing total storage capacity under development to 2.3 million barrels. GEI was trading at a year-high of $30.00 on Friday.

Macdonald, Dettwiler & Associates (MDA) – MDA reported strong revenue as expected with inline earnings of $1.37 per share. MDA’s underlying business continues to perform as the company announced two more communication satellite contract awards and a contract for a hosted payload. SSL has won four of the seven year-to-date industry awards this year. Including these wins, MDA’s backlog exceeds $3B. Higher revenue visibility allows MDA to more effectively plan projects, which could provide margin upside.

Whitecap Resources (WCP) – Whitecap announced the closing of its acquisition of the Imperial Oil assets, and included in the release was a strong current production number of 35,500 boe/d (73% liquids) which was well ahead of NBF Q2 production estimate of 30,250 boe/d (72% liquids). Impressively, the company is already ahead of Q2/Q3 consensus (32/33 kboe/d) and nearly in-line with our Q4 average estimate! WCP remains one of the best value investments in the large-cap energy yield sector.

All-Cap Growth Basket

AutoCanada (ACQ): AutoCanada announced on Monday that they have signed a purchase agreement for a dealer group, as well as purchase agreements for additional unrelated dealerships outside of the dealer group. In total, the company has executed purchase agreements for eight dealerships, which they expect to close over the next 90 days. ACQ traded higher by over 11% this week and a new year high.

 Constellation Software (CSU): An excellent feature article on CSU, which reported Q1 results this week. The stock had pulled back over the last week but post-Q1 results, the shares traded higher by 8% and we remain buyers of CSU. “The most successful Canadian dealmaker you’ve never heard of”

U.S. Growth Basket

Sealed Air (SEE) – Sealed Air announced a 43% increase in adjusted EPS of $0.43% and 2.8% increase of net sales compared to last year. Adjusted EBITDA margins also increased by 110 basis points to 13.8% as compared to 12.7% in the previous year. The stock spiked to a new year high of $37.20 before pulling back to $33.60

Retirement Corner

 1)     “Could the TFSA become a victim of its own success?” (Globe and Mail)

Week at a Glance

 Week at a Glance

Reads of the Week

Following up our Energy note last week, Bloomberg had a terrific series on “Canada Energy Super Power in Waiting”. A few of the selected articles: How Obama Shocked Harper as Keystone’s Frustrator-in-Chief”  and “Canada Finds China Option No Easy Answer to Keystone Snub”

“In Defense of Your Laggard Holdings” (Morningstar) Are your positions firing on all cylinders? Look out below.

“Why 2014 could be the year of M&A for Canadian investors” (Canadian Business) “Sitting ducks” in a range of sectors

“The Illogic of Active Trading” (New York Times)

“Oil and gasoline prices: many still missing the big picture” (Econbrowser)

 “Pay close attention to what’s motivating market commentary” (Washington Post)

Economic Calendar

Monday May 5th – US ISM Services Index

Tuesday May 6th – Canada Ivey Purchasing Managers Index; US Trade Balance

Wednesday May 7th – Canada Building Permits;

Thursday May 8th – Canada Housing Starts and New Home Price Index; US Initial Jobless Claims

Friday May 9th – Canada Unemployment Rate and Net Change in Employment

Earnings Reports

Monday May 5th – Alaris Royalty, Newalta, Parkland Fuel, AIG, Pfizer

Tuesday May 6th – Agrium, Allied Properties, BCE, George Weston, Gibson Energy, Keyera Corp, Sun Life, Disney

Wednesday May 7th – Avigilon, CI Financial, Brookfield Asset Management, Enbridge, Home Capital Group, Intact Financial, Kinross Gold, Tim Hortons, Superior Plus

Thursday May 8th – Canadian Natural Resources, Cineplex, Crescent Point, Fortis, Magna, Pembina Pipeline, Telus

Friday May 9th – Enerplus

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