Contrarian views for 2017, seven dos and don’ts for your portfolio, and Trump's market mirage
If bland predictions for the S&P 500 in 2017 don’t excite you, a couple of notable contrarians have far more specific – and bullish – views on how they see the year-ahead unfolding.
Both Prem Watsa, chief executive officer of Fairfax Financial Holdings Ltd., and Steven Eisman, senior portfolio manager at Neuberger Berman and a key character in Michael Lewis’ book The Big Short, have made remarkably upbeat statements this week about financial stocks in particular.
Mr. Watsa summed up his view when he announced Fairfax’s largest-ever acquisition on Monday, the $4.9-billion (U.S.) deal for Allied World Assurance Company: “In the last few years, we’ve played defense,” he said on a conference call. Now, he added, it’s time to play offense.
While he didn’t mention the appeal of financials specifically, his deal for Swiss-based Allied World certainly reflects considerable enthusiasm for the sector, given that the deal adds to Fairfax’s exposure to the U.S. insurance sector.
Meanwhile, Mr. Eisman was more specific during an interview on CNBC. The strategist, who was one of the few who saw the onslaught of the housing-driven financial crisis in 2008 by short-selling securitized subprime home mortgages, believes the incoming Trump administration will relax financial regulations.
While that’s not necessarily good news for the financial system (Mr. Eisman is a fan of the Dodd-Frank Act, which president-elect Donald Trump wants to scrap), he believes it should be great news for financial stocks. He says he's going to be as “long as I can be.”
-- David Berman
Stocks to ponder
BSM Technologies Inc. This stock is up 57 per cent year to date with a forecast for a further 47 per cent gain, writes Jennifer Dowty. The stock may appear on the positive breakouts list in 2017 if analysts’ bullish forecasts are correct. BSM is a provider of services such as remote asset monitoring, fleet tracking, and freight management. The average one-year target price is $1.99, implying the share price may appreciate 47 per cent over the next 12 months.
Empire Co Ltd. There is only one reason to consider Empire Co. Ltd. shares after the debacle of the company’s second-quarter financial results: They’re cheap. But so what, asks David Berman. Empire is better known as the parent of the Sobeys grocery-store chain – but now, sadly, best known for blowing $5.8-billion for Canada Safeway’s stores in Western Canada in 2013 and becoming a poster child for destroying shareholder value. While that might look like a tempting, bargain-basement price, you could be waiting a long time for the news to improve – and in the meantime, things could get much worse.
Painted Pony Petroleum Ltd. This top performer features 12 ‘buy’ calls and 27 per cent upside forecast, writes Jennifer Dowty. It is a a gas-weighted energy stock that has been a top performer. The company has a strong growth profile that may support additional upside in the stock’s valuation for 2017.
Top contrarian stock picks for 2017
Citi strategists write that 2016 was the year "contrarians win at last," writes Scott Barlow. Boosted by the recovery in resource stocks, Citi’s global list of contrarian picks generated a 31-per-cent return, well above major equity benchmarks. The strategists also believe that contrarians will be ‘back for more’ in 2017 and published a list of contrarian investment ideas. Health care names dominate – Teva Pharmaceuticals, Allergan U.S. health care , Novo Nordisk A/S, and Gilead Sciences Inc. are among the ideas.
The less we fuss over the red-hot Dow, the better
Dow 20,000 has a nice ring to it. Let’s ignore it, writes David Berman. The Dow Jones industrial average, the blue-chip index of 30 U.S. stocks, has been on fire for the past month since Donald Trump prevailed in the presidential election. The index broke above 19,000 on Nov. 22, and has since added close to 1,000 points in less than four weeks, putting it on track for its fastest-ever 1,000-point gain. It closed on Friday at 19,843.41, just 157 points shy of the mark. For the Dow to reach 20,000 looks like the perfect reflection of good times, as U.S. economic growth picks up and rising bond yields send money flowing from fixed-income investments into equities. Many strategists are optimistic about the year ahead.
Seven do's and don’ts to consider for your portfolio
The stock market was unexpectedly excellent in 2016, writes Rob Carrick. Enjoy the buzz and then get to work preparing for the year ahead. He lists seven dos and don’ts to consider for your portfolio, including holding on to your January statement, not having a tantrum is 2017 isn't as good, and rebalance your portfolio no matter what.
Nine lessons from 2016
George Magnus, semi-retired UBS economist, has a terrific perspective borne of decades of industry experience, writes Scott Barlow. His recent post, “9 Lessons from 2016”, is a great example, covering all of the economic and political news that roiled markets for the year.
Contra Guys: Taking stock of our 2016 returns
The Contra Guys wrap up their past selections in a ribbon and bow, and see how smart they were. Their call on that Weight Watchers was too pricey was right, they still feel there is upside to a Greece-focused ETF, but Dollarama has defied predictions and continues to rise, even though it still looks expensive.
Trump has created a new class of suckers: Investors in U.S. equities
It has become impolite to suggest that the working-class voters who voted for Donald Trump last month got conned. It’s the elites who are the fools, supposedly, underestimating the shrewd politics of Mr. Trump, his supporters’ heartfelt desires for change, and the new normalcy of a Trump administration, writes David Milstead. Alas, this rapid revisionism may be creating a new class of suckers: investors in U.S. equities, he writes. Their enthusiasm for what Mr. Trump may bring as president has created the best post-election rally in equities since the Second World War, with Dow 20,000 the big, round exclamation point on the fervour. Global equity funds received $21-billion (U.S.) in the past week – their ninth-biggest inflow ever. In their expectations for economic growth and a surge in corporate profits, investors are disregarding just how well-aged those two trends are. Let’s remember that the talk before the election was the length of the current economic expansion and the doubts about how much longer it can continue.
Investors, make this temperamental market your friend
With all that's going on in the world right now, can the recent surge in the equity market be explained? asked one of Tom Bradley's clients recently. There’s plenty of scary news out there and the political uncertainty is indeed off the scale. But there are positive things going on too. Behind the headlines in the shadows are indicators that Europe is finding its legs and starting to grow, despite Brexit and political uncertainty. Obscured from sight is the fact that profit growth in Japan is topping the charts and the expansion of the middle class in the emerging economies is unrelenting. And despite what Donald Trump says, the U.S. economy is doing just fine, thank you, writes Mr. Bradley.
How meditation can make you a better investor
The financial professionals who recently packed a classroom in a Toronto office tower were there to learn about a technique typically associated with Buddhist monks, writes Ian McGugan. Meditation is not just for shaven-headed Tibetans in search of enlightenment, the buttoned-down attendees were told. It’s also a practical skill that can help investors think better, overcome their biases in decision making and manage stress.
A fresh take on choosing the right dividend stocks
Dividend investing has received so much attention in the past few years that it’s hard to imagine there’s anything new to learn about the topic, writes Rob Carrick. A new publication called Dividend Advisor is taking a stab at it, though. This monthly newsletter from TSI Wealth Network (they publish The Successful Investor) focuses on dividend sustainability, or the ability of a company to keep making its quarterly dividend payments without interruption. Dividend growth is a widely discussed strategy, and lots of investors put a premium on stocks with high yields. But sustainability hasn’t had as much attention, possibly because it’s tough to assess. One measure is the dividend payout ratio, which measures the percentage of corporate earnings paid out as dividends.
Gordon Pape: His income portfolio is up 10.5% annually
In May 2015, Gordon Pape created an income portfolio designed for Tax-Free Savings Accounts (TFSAs) for his Income Investor newsletter. This portfolio has a goal of generating cash flow of at least 5 per cent. Income is the key to its success; any capital gains are a bonus. Note that because the securities chosen have above-average yields, risk is on the high side. So this is not a good model for very conservative investors. However, it's up 10.5 per cent annually.
Eye on Shorts: What bearish investors are betting against
Here is the list of the largest short positions, as of Dec. 15, on the Toronto Stock Exchange.
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What’s up in the days ahead
Scott Barlow checks up on the valuations of the Canadian banks - and likes what he sees. David Rosenberg, who's warning this stock market rally may be getting overheated, shares a few areas of the market where he thinks there still is value. And John Heinzl looks back on his dividend portfolio this past year and, as you may suspect, should have quite a merry Christmas.
Click here to see the Globe Investor earnings and economic news calendar.
Please note the Globe Investor newsletter will be going on holidays for the next couple of weeks. Look for our return on Jan. 3.
Compiled by Gillian Livingston