Articles

What investors should buy now if they like high yields and low prices

0 Comments

 

Timing the market is a tricky business. To do it really well you have to get three things right. You need to buy in at the right time, sell at the right time, and then reinvest your funds at a good time.

Our view has always been that given that markets go up pretty steadily over the long term, it is much better to be invested for the long term as opposed to trying to be right three times in a row on timing.

What I will say about timing is that at times like these, you can lock in some meaningful long term income that can help to carry your investments through the future ups and downs. Specifically, there are companies that are now yielding 4.5 per cent or more per year, while trading at low valuations, even though they made more money in 2018 than any time in their history.

These investments remind me why markets go in cycles and don’t simply go up when times are good, and don’t simply go down when times are bad. When good companies get cheap, sometimes even the worst headlines won’t keep good investors from buying. The companies that I will discuss today were decent companies when they were priced 20 per cent or 30 per cent higher than today. Now they are very compelling buys.

These companies won’t stay long as such bargains. Maybe they will be even bigger bargains in the weeks ahead, but when you look back at January 2019 in five years, you will likely be happy that you were able to buy these companies at the prices and yields that you did. (Disclosure: My firm owns all four investments mentioned in this column.)

New Flyer Industries

Stock picksNew Flyer Industries is a Winnipeg-based company that manufactures and services transit buses and motor coaches. The stock was down 42 per cent in 2018 and down 25 per cent in the final three months of the year. Today it trades at around $34 a share, has a dividend yield of 4.5 per cent, and is trading at 8.8 times its forward earnings — a significant discount to its long-term average. During the terrible returns for the stock in 2018 it has seen its earnings continue to grow, as it has for the past six years. It is very integrated in both Canada and the U.S., and while there were some worries about how NAFTA would impact operations it looks fairly positive at this point. Today it is simply a great deal.

Bank of Nova Scotia

Bank of Nova Scotia has been the worst performer of the Big Six banks over the past two years. One of the reasons that this is important is that historically when a big Canadian bank underperforms it tends to play catch up. Bank of Nova Scotia is definitely different than its peers from an international strategy standpoint, but it made two big Canadian acquisitions in 2018 with MD Management and Jarislowsky Fraser. It currently pays a five per cent dividend and is trading at 9.8 times its forward earnings. It looks a cheap price to pay for a five per cent dividend.

LyondellBasell

LyondellBasell is a petrochemical producer based in the U.S. and Europe. With a market cap of US$32 billion, this large cap company is paying a 4.6 per cent dividend yield, is trading at 6.7 times next years’ earnings, and despite record earnings in 2018, the stock has dropped 24 per cent in the past 6 months. While not Canadian dividends for tax purposes, 4.6 per cent is still 4.6 per cent.

Canaccord Preferred Share Series C

The current dividend yield on Canaccord’s Preferred Share Series C is 7.75 per cent. It pays $1.248 a year in dividend and is currently priced at $16.10. This dividend amount is in place until June 30, 2022 at which point it could go up or down depending on the five-year Government of Canada rate at the time. It has been trading in the $18 to $19 range for the last year and a half. In early November it was $18.09. It dropped to $15.15 on December 15. While Canaccord is a higher-risk name (they are a mid-sized investment brokerage firm) than a Big Bank preferred share, we believe that a 7.75 per cent dividend is a great yield on an investment that should likely be trading 10-per-cent-plus higher.

Part of the reason for my confidence in investing in these names now goes back to the basic fact that markets go up over time, and if there has been a solid pullback, then you will probably get a bit of a boost in your investment on yield and ultimately capital gains.

The attached chart looks at the S&P 500 since 1940, and the seven worst quarters it has experienced. It then looks at the market performance in the one year, three year and five years after that terrible quarter. Most investors would have been happy with the one year return in six of those seven scenarios, and happy with seven of seven scenarios for three-year and five-year returns.

 

After the S&P fall

We have no idea what will happen in the markets in the next day or week or month, but the stock markets in the long run haven’t let me down so far, and buying cheap with high yields makes it an even better bet.

Reproduced from the National Post newspaper article 7th January 2019.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Lorne Zeiler on BNN’s The Street – March 21, 2018

0 Comments

Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor, TriDelta Investment Counsel, was the guest co-host on BNN’s The Street on Wednesday, March 21st discussing the following:

Income Investing Strategies in the Current Environment

Given the expectations of rising interest rates and renewed market volatility a traditional bond or dividend focused portfolio may be incapable of generating sufficient income at low volatility needed by investors. Lorne Zeiler, Portfolio Manager, discusses how to design a stable, income producing portfolio in this environment on BNN’s the Street.
Click here to view

Keeping Calm and Profiting from Volatile Markets

When markets drop significantly in short periods investors often let emotions take over and make bad investment decisions. Lorne Zeiler, Portfolio Manager, discusses how to take emotions out of investing by designing a stable, diversified portfolio, including alternative assets, on BNN’s the Street.
Click here to view

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

Investing like the pros

0 Comments

The traditional so-called 60-40 asset allocation model, has 60% invested in stocks and 40% in government or other high-quality bonds. But after a decade or more of out-of-the-ordinary market conditions, many investment professionals are tweaking the model or abandoning it altogether.

The historical 60/40 investment management approach performed reasonably well throughout the 80’s and 90’s, but a series of bear markets that started in 2000 coupled with a three decade period of declining interest rates have eroded the popularity of this approach to investing.

Bob Rice, the Chief Investment Strategist for Tangent Capital, spoke at the fifth annual Investment News conference for alternative investments and predicted that a 60/40 portfolio was only projected to grow by a mere 2.2% per year in the future and that those who wished to become adequately diversified will need to explore other alternatives such as private equity, venture capital, hedge funds, timber, collectibles and precious metals.

“You cannot invest in one future anymore; you have to invest in multiple futures,” Rice said. “The things that drove 60/40 portfolios to work are broken. The old 60/40 portfolio did the things that clients wanted, but those two asset classes alone cannot provide that anymore,” he said. “It was convenient, it was easy, and it’s over. We don’t trust stocks and bonds completely to do the job of providing income, growth, inflation protection, and downside protection anymore.”

At TriDelta we put together a brochure that summarizes alternative investments titled, Alternative Investments, A proven path to higher and stable returns (Click to download).

A case in point is the continued success of Yale Universities USD27 billion endowment plan. They recently published an update that confirms excellent performance, a return of 11.3% ending June 2017 as a result of a highly diversified portfolio that significantly limited exposure to bonds of only 7.5% and equities to 19.5% (4% domestic US and 15.5% global, ex US). The rest comprised real estate, absolute return, venture capital, leveraged buyouts and natural resources – these are so called ‘alternative investments.’

Yale University as a prime example of how traditional stocks and bonds were no longer adequate to produce material growth with manageable risk.

Alex Shahidi, JD, CIMA, CFA, CFP, CLU, ChFC, adjunct professor at California Lutheran University and managing director of investments, institutional consultant with Merrill Lynch & Co. in Century City, California published a paper for the IMCA Investment and Wealth Management magazine a few years ago. This paper outlined the shortcomings of the 60/40 mix and how it has not historically performed well in certain economic environments. He states that this mix is almost exactly as risky as a portfolio composed entirely of equities, using historical return data going back to 1926.

At TriDelta Financial we recognize the short-comings of a portfolio limited to the old traditional 60/40 stock, bond model and as a result have embraced alternative solutions as an integral part of our investment management platform.

Anton Tucker
Compiled By:
Anton Tucker, CFP, FMA, CIM, FCSI
Executive VP and Portfolio Manager
anton@tridelta.ca
(905) 330-7448

Lorne Zeiler on BNN’s Market Call, February 7, 2018

0 Comments

Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor, TriDelta Financial, was the guest on Market Call last night (February 7, 2018).

Below is a link to Lorne’s top picks, market commentary and past picks

Click here to view

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

Buying Low: Investing Strategy in Frothy Times (from the Globe and Mail)

0 Comments

When stock markets have risen significantly, often some of the best investing opportunities is in the sectors that have been unloved and overlooked. Lorne Zeiler, Portfolio Manager and Wealth Advisor at TriDelta Investment Counsel was one of three portfolio managers asked where to look for value investments today by Globe and Mail reporter Joel Schlesinger (February 28, 2017).

As stock markets reach new heights, especially in the United States, investors might be recalling the adage “what goes up must come down.”

But by the same token, what has been down – the unloved, undervalued and overlooked – usually bounces back, eventually. With that in mind, consider these investments.

Health-care stocks

Even though the U.S. equity market has experienced a record-breaking runup, health-care stocks still have attractive valuations, says Lorne Zeiler, portfolio manager and wealth adviser with TriDelta Financial in Toronto.

“The sector was held back in 2016 due to concerns of increased regulation affecting drug pricing, first by a potential Clinton presidency and then from comments by President-elect Trump,” Mr. Zeiler says.

But these fears are likely exaggerated, he says. Earnings are forecast to grow by 8 per cent in 2017, and stocks are trading at about 15 times forward earnings around their five-year average, while nearly every other sector trades significantly higher.

Here are two stocks to consider:

  • AbbVie Inc.: The maker of Humira, a popular drug to treat rheumatoid arthritis, AbbVie has a “strong pipeline of new medications expected to be approved” soon. Moreover it has a decent dividend yield of about 4 per cent and trades at less than 12 times estimated forward earnings. One concern is that the company is heavily reliant on the performance of Humira, which makes up half of its sales.
  • Abbott Laboratories Ltd.: This diversified company earns revenue from generic pharmaceuticals, medical products and nutritional supplements such as Ensure. Abbott is forecasting good earnings growth due to its expanding sales of diagnostic technologies and recent acquisitions. “Risks to the stock price include pricing pressure from competitors and foreign exchange, particularly for its emerging-market sales,” Mr. Zeiler says.

Emerging markets

These generally fast-growing economies have faced a laundry list of problems, says Navid Boostani, a portfolio manager and co-founder of ModernAdvisor, a robo-advisory in Vancouver.

“Slowing growth in China, political turmoil in Turkey and Brazil, and economic sanctions against Russia have all been headwinds,” Mr. Boostani says. “But we think the bad news is already priced in, and long-term investors have a unique opportunity today” to buy low.

Here are two exchange-traded funds (ETFs) for investors who want to tap into emerging-market growth:

  • Vanguard FTSE Emerging Markets All Cap Index ETF: Rather than playing one particular market, this fund provides exposure across the board. It charges an industry-low management expense ratio (MER) of 0.24 per cent (for the TSX) with a distribution yield of 1.24 per cent. Most importantly, this sector has room to grow. “Both [emerging market] currencies and equities are trading at close to historical lows,” Mr. Boostani says. A bumpy ride could lie ahead, though, as the U.S. becomes increasingly protectionist and its dollar increases in value, pushing up borrowing costs in developing nations.
  • PowerShares DB Base Metals Fund ETF: Another play on emerging-market growth is to invest in commodities, and this ETF provides that exposure without the complications and barriers that retail investors face in buying futures contracts directly. Investors in this fund get access to a basket of futures contracts for base metals such as aluminum, zinc and copper, all key to industrial and manufacturing growth. “Commodities came off of a five-year bear market in 2016, with industrial metals leading the charge,” Mr. Boostani says. “The bulk of demand growth is expected to come from robust economic activity in China.” Commodities tend to be very volatile, however, so they should make up only a small portion of a well diversified portfolio, he adds.

Playing volatility

Mark Yamada, portfolio manager and chief executive officer of PUR Investing in Toronto, cites two ways to capitalize on volatility. For those who can handle large swings in price, China has been unloved of late. Yet it offers a lot of upside, he says. At the opposite end of the spectrum, consider low-volatility equities, such as banks, utilities and consumer staples, which have fallen out of favour recently as investors set their sights on recovering energy and other commodity related stocks.

Two to consider:

  • iShares China Index ETF: China is the largest of the emerging markets, so it has great influence on the world economy. “China has been in the doldrums, albeit with 5- to 6-per-cent GDP growth,” he says. With Mr. Trump pushing an America-first agenda, likely increasing barriers to global trade rather than removing them, “the Chinese will benefit,” Mr. Yamada says, filling the void in global leadership for free trade. Moreover its growing middle class is increasingly driving the Chinese economy, meaning China will rely less and less on U.S. consumption. Still, the Chinese marketplace can be a pricing rollercoaster, he notes.
  • BMO Low Volatility Canadian Equity ETF: If the ups and downs of emerging markets make you queasy, consider a low volatility approach that focuses on steady parts of the equity market. Many experts have been down on low volatility stocks of late, arguing that they are overvalued and will be outperformed by growth stocks with greater volatility. But Mr. Yamada contends that high volatility stocks do not add value to portfolios over the long term as much as their low volatility counterparts. This BMO ETF offers investors a diversified basket of Canadian banks, utilities and other defensive stocks. And while it may have “lagged the S&P TSX Composite for the past year because it was underweight energy and minerals … it is a great long-term core holding.”

 

Lorne Zeiler
Contributed By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

Top consumer discretionary stock picks

0 Comments

Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor at TriDelta Financial, was recently invited by the Globe and Mail to provide top stock picks in the consumer discretionary sector.

Special to The Globe and Mail, Published Tuesday, May 10, 2016

16413399_sConsumer discretionary stocks can capture the momentum of an improving economy. In good times, money flows into this sector as retailers, media companies and automotive manufacturers benefit from increased spending by consumers with more disposable income. In turn, investors are rewarded with rising share prices and dividends. Yet during a more uncertain economic environment – such as the one we are in now – the sector can be tricky to navigate, so we asked three investment professionals for their top picks.

Lorne Zeiler, portfolio manager with TriDelta Financial in Toronto

  • L Brands Inc. (LB-N)
  • Last close: $70.03 (U.S.)
  • Dividend yield: 3.43 per cent

Based in Columbus, Ohio, this retailer owns Victoria’s Secret and Bath and Body Works – two chains with global reach and leaders in their respective retail categories. “Both brands have strong customer loyalty, providing the company with pricing power and ability to maintain its strong margins,” Mr. Zeiler says. Benefiting from an improving environment in the United States, the company is also expanding rapidly into emerging markets, building its revenue overseas while increasing efficiencies in existing stores in North America and Europe to improve margins. Also of note, L Brands has “a history of dividend growth and trades at a reasonable valuation to its peers,” he says.

  • Tupperware Brands Corp. (TUP-N)
  • Last close: $55.49 (U.S.)
  • Dividend yield: 4.90 per cent

The world’s largest direct seller of plastic storage containers and cosmetics, the company has consistently strong sales in mature markets such as North America and Europe. Where the company’s real growth lies, however, is in emerging markets such as China, Brazil, Argentina and South Africa. “Tupperware offers a high dividend for yield-hungry investors and trades at an attractive multiple of less than 14 times forecasted earnings,” Mr. Zeiler says. A strong U.S. dollar did negatively affect earnings in 2015 because of Tupperware’s exposure to foreign markets where, despite increased sales, revenue was lower when converted back to dollars. “This headwind may now be a positive as Tupperware recently increased its earnings per share estimate for 2016 by 5 per cent solely based on the decline in the U.S. dollar.”

Here is the link to the original Globe & Mail article.

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225
↓