Outlook for November 2014

Outlook - November 2014

The QE program has finally ended! After the start of first QE nearly six years ago, the Fed has decided that they have bolstered the economy enough by ending the QE3. Although the Fed remains fairly optimistic about the economy, they have indicated they will not be rushing to raise the interest rates anytime soon. For the most part, economists expect the rates to rise either at the end of 2015 or early 2016. But then again, the same “experts” were forecasting that the rates would be up by now when asked a year ago…so who knows! The end of QE has brought some volatility in the market that has been very interesting over the course of October. Especially coupled with the fall in oil prices, there were plenty of opportunities for investors to pick up strong corporate names at discount prices.

Outlook for November 2014

November is expected to be just as volatile as October, although the market seems to still be adjusting to the end of the QE program. Some eyes are moving to overseas markets, esp Europe, which is facing deflationary risks and is expected to take the baton on QE from the US Fed. The European QE program might look very different from the US program, and some experts are skeptical of its impact on the economy and the markets. Meanwhile, Japan announced a surprise stimulus package on Halloween that is expected to help raise the markets not only in Japan, but would also benefit other markets (such as the US).

Specifically in the energy sector, the depressed oil prices will spell gloom for the energy producers – both companies and countries, while the energy consumers will invite these prices with open arms (both companies/sectors and countries). While I remain bullish on the energy sector in general, I am more bullish on natural gas in particular as I believe natural gas will be the place-to-be this century – just as oil was, in the 20th century. It is for this reason that I have chosen energy names such as Chevron (CVX) and Kinder Morgan Inc (KMI) as part of my portfolio, which in addition to oil/liquids has a huge (bigger than some of their competitors) stake in natural gas.

My Holdings

I am fully invested, with just a 1.4% cash position in my holdings. I will be concentrating on rebuilding my cash positions over the month unless something un-passable comes up. Provided the right conditions, I might add to my positions in some of the following holdings.
Medtronic Inc (MDT) manufactures and sells device-based medical therapies worldwide. Medtronic is a dividend champion that has been raising dividends for 36 years; has a 5-yr DGR of 11.6% and 10-yr DGR of 14.9%. MDT has recently announced plans to takeover Covidien (COV) and is planning a tax inversion to Ireland.
RioCan REIT (REI.UN.TO) – is one of the largest REITs in Canada and owns a lot of retail real estate across Canada. Although not a dividend grower (5-yr DGR 0.50%), the stock is currently undervalued and I am considering adding to my position simply because there is plenty of value to be found at these levels.
Rogers Communications Inc (RCI.B.TO) is the largest wireless service provider in Canada and is growing its business segments in cable and media aggressively. Rogers, along with Vice Media, announced last week a $100M deal to form a new Canadian content media network – expanding Rogers’ push into media. Rogers has been growing dividends for 10 years and has a 5-yr DGR of 11.7%. Click here to read about my analysis of the telecom providers in Canada.
Wells Fargo & Co (WFC) is one of the largest financial institutions in the world and is a behemoth in the US mortgage. The company is also the largest portfolio holding in Berkshire Hathaway, where Warren Buffett has invested $23B in the company. WFC saw dividend cuts during the financial, but has started raising the dividends after with the 5-yr DGR of 10.76%.

 

Monthly Contributions: I have been making monthly contributions to the following, which I am contemplating making changes to.

  • iShares S&P US Dividend Growers ETF (CUD.TO) is an ETF of 83 dividend growers and provides me with exposure to excellent corporations across all sectors. The ETF has a 1.8% yield and pays distributions monthly. I have built a decent position in this ETF and while its an excellent selection, I am considering taking a second look as there have been new entrants from other ETF providers such as BMO and Vanguard. I will be reconsidering if I want to continue holding this ETF or switch to the others.
  • iShares Canadian Financial Monthly Income Fund (FIE.A.TO) is an ETF of 24 Canadian financial equities (70%) and bonds (30%). The fund yields 7% and pays distributions monthly. This has been a great source of income in my portfolio. However, iShares has quietly raised the MER on this ETF, which is unacceptabl at 1.7%. There is a related fund with the same name but ticker FIE.TO, that has an MER of 0.9% and yields 6.5%. I am considering switching to either that or look for other funds.
  • The Bank of Nova Scotia (BNS.TO) – I have a DRIP plan in BNS, but am contemplating cancelling to move the holdings over to a tax-sheltered account instead. I will posting more details on this in the coming days. Last week I completed a dividend stock analysis on BNS and found that it is currently 15% undervalued. Click here to read the full analysis.

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 deeply value reading your questions and comments.

Disclosure: My full list of holdings are available here.
Photo Credit: Joel

11 thoughts on “Outlook for November 2014

  1. We own, and have owned for quite a number of years, 500 shares of BNS. It’s been a great dividend stock for us–which is the main reason we bought it–and as a bonus has appreciated very nicely over the time we’ve owned it. (Of course that’s not ‘money in the bank’ yet.)

    The possibility that Canadian home values are way overblown, particularly in certain markets, causes me concern about BNS and Canadian mortgage lenders generally. Because of this, I don’t see us increasing our investment in BNS, and I would likely sell out at the first signs of housing market bubble deflation, which probably won’t happen unless and until interest rates begin normalizing.

    • Thats quite a big chunk of holding, Kurt. Its a great stock and being the most diversified, I think it will weather the storm best compared to the other banks. It is also good to keep in mind that a lot of the mortgages are insured, so the banks are in a good spot comparatively. But I hear ya on the headwinds and the potential issues. I will be keeping a close eye on that development as well.

      Thanks for stopping by and the thoughtful comment
      R2R

  2. R2R,
    KMI and CVX are my solid energy plays. WFC is my biggest financial holding.
    I like the review that you did on BNS and I can see why you think it is undervalued with different method of calculations. It is high on my November watchlist together with RY and TD. I like MDT but the entry yield is too low for me right now but we’ll see.
    FFF

    • Looks like we have quite a few stocks in common, FFF. I am also wondering if I should add RY or TD to my portfolio instead of adding more to the existing positions. According to my analysis, both RY and TD are fairly valued right now – so, makes more sense to add to BNS which is undervalued by 15%. Also, being the more international bank – its good from a diversification perspective.

      Best wishes with your investments
      R2R

    • Im sure you would say the same early next year 😉
      For us investors accumulating shares, we want depressed prices. Corrections like the ones we saw last month are great opportunities. I want to be in a position to take advantage of such corrections when they present themselves and the reason why I think cash positions are important in a portfolio.

      cheers
      R2R

  3. R2R,

    I think markets are high and I will probably think the same thing 2,4,6, and 8 years from now. At the end of 2012 the S&P 500 was in the 1300’s and it seemed high then. Now at 2000+ it really seems high. I plan on adding companies in high and low markets. That is how real wealth is created. Some the energy names like CVX, BP, and Shell look interesting at their current levels. They may drop some more, but that ok too. Good luck with your November!

    MDP

    • I hear ya, MDP. Its been looking expensive for a while and any small drops in the market like last month should be taken as a good buying opportunity. Im glad I added to my position in CVX and initiated AAPL during the time. Energy sure seems quite attractive now, but I am already over-invested in the sector, so I will pass on it.
      Thanks for stopping by and good luck with your November as well.

      cheers
      R2R

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