Wednesday, June 17, 2015

Outlook for June 2015

June is here! This year is just flying by, don’t you think? The stock markets have seen increased volatility over the past few weeks, while the bond markets have seen a rout with billions of dollars wiped out in a matter of weeks. This increased volatility can provide some good entry points for long term investors to pick up some attractively valued companies.

The Fed made a decision not to hike rates in June, which sent the market even higher. For now, its a wait-and-see approach and I intend to follow suit. Data coming in has indicated that the US GDP contracted in Q1 – and its really hard to see how the Fed can actually raise rates this year. Nevertheless, if a rate hike is announced, Im sure we will see some knee jerk overreaction which should present some good long term investment opportunities. On the Canadian front, the Bank of Canada (BoC) is taking a similar wait-and-see approach after the rate cut in January. BoC expects to see some major headwinds in western Canada after the oil rout, and there are already reports of a potential housing correction starting in Calgary. We will have to wait and see if the rest of the country follows suit.

Outlook for June 2015

In February, we started putting together an index-based ETF portfolio for my wife’s portfolio. In order to avoid buying at a market top, we started off with a modest amount of funds put to work. We will continue building our position over the course of the year. The portfolio details are shared here. As for my portfolio, I hold a decent amount of cash as discussed in my 2015 goals post. I am well above the 3-5% of cash position target to take advantage of market corrections.

Portfolio Considerations

Some of the stocks that I am keeping an eye on from my existing holdings:
  • Magna International (MG.TO) is the most undervalued stock in my portfolio, although the stock price has seen quite a run-up in the last few weeks. The fundamentals are absolutely fantastic and this company is relatively unknown outside of Canada, unless you follow the automotive sector closely. I am tempted to add to my position in this automotive parts giant with a 5-yr DGR of 76%. Magna raised its dividend recently by 16% and the stock split 2:1.
  • Main Street Capital (MAIN) is a Business Development Company that operates in southern US. The company pays monthly dividends and currently yields 6.7%. The high-yielding dividend grower also pays semi-annual supplemental cash dividend and announced last week an extra dividend of $0.275/share in June on top of the regular monthly dividends.
  • Power Corp of Canada (POW.TO) is a financial conglomerate. While the main focus is insurance and asset management, the company invests in various other sectors of the economy such as utilities, media etc. The company announced its first dividend increase after six years in May with a 7.3% bump in dividends. I initiated a position after the announcement and will be looking to add further to this position. Details of this purchase shared here.
  • After the recent rises in General Electric (GE) and AT&T (T), I have decided to put those companies on the back-burner as I seemed to have missed the boat on adding at an attractive price. I would still like to add them, but the recent rise in stock prices has pushed me to the sidelines when it comes to these two companies.
Possible new additions that I am looking at:
  • Canadian banks are at an attractive valuation after the rout in the energy sector. The banks are exposed to the expensive Canadian oil sands and the drop in energy prices has resulted in a drop in the Canadian dollar – which will affect the banks’ balance sheets in the coming quarters. A few glimpses of this already apparent in the latest quarterly reports that were released last week. Banks that I would like to own are Royal Bank of Canada (RY) and Bank of Montreal (BMO) or add to my existing position in Bank of Nova Scotia (BNS) or Toronto-Dominion (TD). Read details of why I think the Canadian banks are attractive to buy now.
  • In the food and beverage sector, I am looking to initiate a position in Tyson Foods (TSN), Coca Cola (KO), PepsiCo (PEP), or Starbucks (SBUX).
  • I am also looking at adding another REIT to my portfolio: in this space, I am considering international office REIT companies Dream Global REIT (DRG.UN.TO) or W.P.Carey Inc (WPC) and/or healthcare REIT to complement my position in Omega Healthcare Investors Inc (OHI) and looking to add either HCP Inc (HCP), Ventas Inc (VTR) or Health Care REIT (HCN). The other REITs on my radar are in the farmland sector: Farmland Partners Inc (FPI) and Gladstone Land Corp (LAND).

Dividend Increases

I am expecting dividend increase announcements from just one company in June.
  • Realty Income Corp (O) – last increase was 0.26% in March 2015
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.

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