Canadian Large Cap Stocks Moving Forward

 

This blog has repeatedly urged caution since mid April. In addition, recommended recent strategies include selling on strong days (e.g. August 3^rd AM), purchasing high paying dividend stocks to bolster returns, and considering high yielding Preferred Shares (e.g. Bombardier, Brookfield Properties, Canada Western Bank, & insurance companies).

Furthermore, this blog has recommended precious metal companies (Agnico Eagle, Eldorado, Iamgold, & Silver Wheaton), telecom (BCE & Telus) and highlighted the strength in agricultural plays (Agrium & Potash) prior to the recent run-up.

I still recommend extreme caution and to remain mostly out of equities for now even though certain opportunities have become apparent. According to market guru Jim Cramer of CNBC on Monday, he hasn’t seen the market look so troubling in years owing to small retail investors having fled the market.

Market Opportunities worth watching: Stocks hitting 52 week lows yesterday include: Encana (ECA), Husky (HSE), Manulife (MFC), Nexen (NXY), RIM, Royal Bank (RY), & Sunlife (SLF). Encana and Royal in particular look interesting at these levels. Other stocks nearing 52 week lows or displaying weakness include Canadian Natural Resources (CNQ), Canadian Oil Sands Trust (COS.UN), & Power Financial (PWF). In the precious metals sector, Kinross (K) has been particularly weak and should be watched for opportunities. Overall recommendation is to sit tight and wait for further market meltdown.

 

Canadian Large Cap Stocks: Continue With Caution

While the TSX Composite lost 2.3% this past week, this would not give a complete picture of the widespread selling pressure placed on large cap Canadian stocks. Look at some of these figures on this past week’s stock performances: Financials: Bank of Montreal (BMO) – 4.08%, Industrial Alliance Insurance (IAG)-3.93%, Manulife (MFC) -9.27%, National Bank (NA) -4.81%, Power Corp (POW) -4.74%, & Sunlife (SLF) -6.50%. Resources: Canadian Natural Resources (CNQ) -8.42%, Encana (ECA) -6.93%, Nexen (NXY) -6.51%, Talisman (TLM) -5.67%, & Teck Resources (TCK.B) -5.73%. Transport: Canadian National (CNR) -4.26% & Canadian Pacific (CP) -3.87%. Manulife, Nexen & Sunlife all hit new 52 week lows this past week.

Hot Sector: Both Agrium (AGU) +2.65% & Potash (POT) -0.49% have held up well through the carnage. Both are up over 13% through the past 4 weeks.

Safety Plays: Preferred Shares: Bombardier (C & D) pay around 7%, Brookfield Properties (L & N) 6.1-6.4%, Canadian Western Bank (A) 6.4%. Insurance companies along with the two smaller banks (CIBC & National) pay in excess of 6% with limited volatility. Corporate bonds 7-9 years out are paying 4.5%.

Precious Metals: Consider Claymore Gold Bullion ETF (CGL) hedged versus US dollar. Agnico Eagle (AEM), Eldorado (ELD), Iamgold (IMG), & Silver Wheaton (SLW) look promising in uncertain times.

Strategy: Watch closely but stay defensive and light on equities. Sell into strength and wait it out. Some of the stocks mentioned above have suffered severe losses and could be poised for rapid increases but it might takes weeks before the rebound. Remain cautious and good luck, Warren

 

 

Surviving the Volatility

Throughout the past 3+ months this blog has repeatedly recommended caution and reducing equity positions. I have also recommended when making equity purchases, to focus on defensive stocks which provide for high dividend payouts to compensate for unpredictable capital gains. Please review how some of these and other recommendations have succeeded this past week.

• Selling into Strength: Following the big rise in New York on Monday (when Canadian markets were closed), this offered a perfect opportunity to sell early Tuesday AM into market strength. As a result, 7 of the 9 stocks I sold were above their original purchase price of the past 1-4 months. Had I not sold into strength, 8 of the 9 stocks would have ended the week below the Tuesday AM selling price. The difference was a 2.7% portfolio gain versus a 1.8% loss.
• The Importance of Dividend Paying Stocks: Over 80% or 2.2% of the 2.7% market gain I achieved on selling into strength Tuesday AM was based on dividend payouts. During periods of market instability or flat performance, dividends can provide for the gains required to insure portfolio growth. These days that can make the whole difference. Another corresponding strategy to be looked at in the future is to sell covered calls on these same stocks. This can provide for a regular flow of income without having to alter positions and trigger capital gains, losses or sales commissions.
• Watch out for Market Volatility: Try to pick stocks in the same sector that move in opposite directions. 2 weeks ago, Industrial Alliance (IAG) decreased 7.06% while Sunlife (SLF) increased 6.48%. 2 ½ weeks ago, after hitting a new 52 week low, Manulife (MFC) bounced back 12.6% from this low within a week. This week Manulife dropped 14.14% and hit another 52 week low.  Last week Brookfield Properties (BPO) neared its market top by two pennies and then dropped 8.18%. This week it dropped another 4.0%. It would appear to me that ordinary investors are losing money. This type of negative volatility has swept across most sectors.

• Hot Sector: Agriculture including Agrium (AGU), Potash (POT) & Viterra (VT). Note however that while Viterra increased 6.83% over the week, it suffered a 4.76% loss on Friday. What was hot last week gives no indication as to future performance in these volatile markets.
• Solid Stock Performers: Throughout the past 3 weeks, Suncor (SU) and Talisman (TLM) have held up well versus the rest of the energy sector. In the banking sector both National Bank (NA) and TD have survived reasonably unscathed. Be careful and lighten up equity holdings selling into strength.

Warren.