Stockwatch: Some of Alberta’s sharpest financial minds share their top stock picks and best plays for 2012
Steve Booker
Manager
Milestone Asset: Management of Canaccord Wealth Management
Stock Pick: Enbridge
“Enbridge has the world’s longest crude oil and liquid pipeline system. Enbridge has shown really steady growth and yields a dividend. So, with Enbridge, you’re getting paid to wait. If Enbridge does grow up to the price targets that Canaccord has set for it [at $38], then it will be great. If we’re in for a tough year, then at least we’ll get our yield and [be] paid to wait while the market sorts itself out.”
Play: Mid-term U.S. government bonds
“If there was a chance the U.S. government would raise interest rates, then it would really hurt the long end of the bond market – but not the mid-term so much. If there is trouble next year, people will run to the U.S. dollar. We would also expect people to run to government bonds for safety. These bonds have the double advantage of being bonds and being priced in U.S. dollars.”
Anil Tahiliani
Portfolio Manager, North American Equities
McLean And Partners
Stock Pick: Western Union
“Western Union generates over $1 billion in cash flow with capital expenditures of only $80 million. Last year, the company bought back roughly six per cent of its shares for over $800 million and paid $100 million in dividends. The company has increased its quarterly dividend from one cent to eight cents since 2006, and outside the United States, no country represents more than six per cent of Western Union’s revenues.”
Play: Large-cap tech
“The top 25 American technology companies are sitting on over $340 billion in cash. We expect technology companies to return cash to shareholders through continued dividend increases and share repurchases. We believe non-tech companies are more likely to invest in technology to improve productivity than increase their head count. In addition, a greater proportion of tech companies today have recurring revenue and low capital-expenditure requirements.”
Wayne Workun
Vice-President, Director
Leede Financial Markets
Stock Pick: Silver Wheaton
“Silver Wheaton’s primary source of revenue is through the sale of silver. The company has 14 silver purchase contracts and two precious metals agreements where Silver Wheaton can purchase the entire silver production at a low fixed cost. The company’s forecast is 25 to 26 million silver equivalent ounces, growing to an estimated 43 million ounces by 2015. The gold side of their business is also expected to grow from 15,000 ounces to 35,000 ounces in the same time frame.”
Play: Precious metals
“Governments will print significant amounts of money to avoid total economic collapse because of high levels of world debt, struggling world economies and the faltering, unregulated credit default swap market. The end result will be the devaluation of currencies, inflation and a lower standard of living. Precious metals, both the commodities and equities, will provide investor protection.”
Daniel Cheng
Vice-President, Portfolio Manager
Matco Financial Inc.
Stock Pick: Pinecrest Energy
“Pinecrest’s production is 99 per cent light oil focused which helps it to generate some of the highest netbacks in North America.
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Production has grown significantly, from 155 barrels per day in 2010 to more than 3,000 barrels per day by end of year 2011. Pinecrest has a strong balance sheet and will grow production more than 100 per cent from current levels next year. With numerous catalysts in the first half of 2012, including 12 to 14 new wells that will be brought on stream and incremental upside from a water flood project, we believe Pinecrest will generate significant shareholder value in the new year.”
Play: Energy
“Continued volatility is expected in global equity markets in 2012, so a core component of any portfolio should include dividend-paying equities. Canada will remain a bright spot globally with oil and natural gas assets being high in demand. Even in the current environment, global oil demand is forecast to surpass 90 million barrels per day. That’s an all-time record high which underscores this play’s strength.”
Ric Palombi
Portfolio Manager, Fixed Income And Asset Allocation
McLean And Partners
Stock Pick: Samsung Electronics
“Samsung is the world’s largest mobile-device company, ahead of Apple and Nokia, with $64 billion in total revenue in 2011.
The company earned 42 per cent of its revenue and 78 per cent of its profits from mobile devices. We expect its earnings per share to increase in 2012 based on higher margins and market share in handsets and better screen display technology. We see a 40 per cent upside on the stock price.”
Play: Emerging markets
“Led by China and Brazil, we expect central banks to cut interest rates, signalling the start of an easing cycle as their growth slows and inflation rolls over. We’re looking for a soft landing for China, the world’s second-largest economy, which will be good for the global economy and emerging-market stocks, in particular. Emerging-market stocks were down 20 to 30 per cent in 2011, and we expect significant outperformance from this region in 2012.”
Kyle Preston
Director, Oil And Gas Research
National Bank Financial
Stock Pick: Penn West Exploration
“The stock has significantly underperformed its peers recently and now trades at a steep discount to the group. The company is approximately 65 per cent oil-weighted and is one of the largest landholders in Western Canada. Although the company missed some key production targets earlier this year, we believe it was largely due to events outside management’s control. We expect production growth to be much more achievable going forward, which should lead to a positive re-rating of the stock.”
Play: Intermediate Yield E&Ps
“We recommend investors remain defensive with their energy exposure and invest in dividend-paying names like the intermediate-yield exploration and production companies (former income trusts). These companies continue to offer attractive yields, roughly in the five per cent range, and are typically well-positioned with strong balance sheets, balanced commodity exposure and reasonable hedge positions. Furthermore, this group has meaningful exposure to unconventional resource plays which we believe will continue to be of interest to foreign oil companies.”
Derek Wheatley
Director, Institutional Equity Sales, Energy Specialist
Scotia Capital
Stock Pick: Parex Resources
“Parex increased its production from zero to 14,000 barrels per day in two years through its Colombian operations. Existing Colombian discoveries underlie 2012 growth, and assets in Trinidad add potential for 2013 growth. The exploration program is fully funded through internal cash flow. In fact, research forecasts more than $200 million in cash flow but $140 million in spending next year. Overall, the company demonstrates a strong track record, strong management, a clean balance sheet and a discounted valuation.”
Play: Slave Point
“The Slave Point is a light oil play in north-central Alberta. Key producers include Penn West, Lone Pine Resources and Pinecrest Energy. The land was previously delineated by more than 2,500 Granite Wash wells, and the shallower Slave Point is now being exploited with horizontal multi-frac wells. Any investment that pays back the investor with capital in less than a year while still providing future cash flow is worth owning. So are the exploration and production companies in this play.”
