Outlook for February 2015

Outlook for February 2015

January 2015 will be remembered as a historically shocking month in terms of central bank moves and currency markets. In total, 14 countries cut their interest rates! The US Fed last week confirmed that they will stay ‘patient’, but all signals point to a symbolic rise in the interest rates, which the markets arent taking well. Some bond gurus such as Jeff Gundlach are calling it a ‘Big Mistake’. Meanwhile, the ECB started a QE program of up to €1T, and Greece continues to be a problem for the rest of Europe. What February will bring, is anyone’s guess. Maybe more surprise moves from central bankers? All in all, 2015 is turning out to be a volatile year indeed.

Outlook for February 2015

The rate cuts across the world make life harder for savers and bond investors. The bond yields continue plunging with a lot of bonds especially in Europe going into negative territory. Investors are left with a choice of either paying banks to keep their money or invest in equities and take on risks. This continues to drive the stock market to an elevated level and finding value has become harder. Nonetheless, there are still some gems that present decent value in the current market.

In February, I will start putting the cash to work into ETFs after selling my wife’s stake in expensive mutual funds. We dont want to invest the whole amount in at one time, so we will be dollar cost averaging in over time. The actual funds that we will be using is still under review and I will be sharing the details soon.

As for my portfolio, even though I added positions in January, I now maintain a healthy cash position (as discussed in my 2015 goals post). If and when opportunities present themselves, I will be able to move quickly and pick up more shares. Some of the stocks that I am keeping an eye on:

My existing holdings

  • AT&T (T) is a provider of wireline and wireless telecommunication services. The company has raised dividends for 31 consecutive years with a 5-yr DGR of 2.3%. The recent quarterly results have shown that AT&T can grow revenues with its investments in Mexico, DirecTV, and have cornered the market in car connectivity. AT&T is also rumored to be outspending Verizon (VZ) during the ongoing spectrum auction, which will help them grow further.
  • Chevron Corp (CVX) is a dividend champion having raised its dividends for 27 years consecutively. Under the current market conditions, where decently valued stocks are hard to find, CVX provides relatively good value. CVX has a 5-yr DGR of 9% and a 10-yr DGR of 10.6%. My Chevron dividend stock analysis can be found here.
  • General Electric (GE) is an industrial conglomerate and has been raising dividends for 5 years. The company is decently valued in the current market conditions. GE has a 5-yr DGR of 1.4%. General Electric is a play on the global industrial market and the company has an ever-increasing backlog of orders.
  • Qualcomm (QCOM) designs, develops, manufactures and markets digital communications products and services based on CDMA, OFDMA and other technologies. QCOM has been raising dividends for 12 years and has a 5-yr DGR of 16.95%. Qualcomm lowered its guidance for the year and the stock has been severely punished. However, I am still confident on the long term prospects of the company as Qualcomm is still expecting approx 10% EPS growth for the next five years.
  • RioCan REIT (REI.UN.TO) – is one of the largest REITs in Canada and owns a lot of retail real estate across Canada. The company generates 90% of its revenue in Canada and 10% in USA. 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.

Possible new additions that I am looking at:

  • Canadian banks have reached attractive valuations 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. Banks that I would like to own are Royal Bank of Canada (RY), Toronto-Dominion (TD), Bank of Montreal (BMO) or add to my existing position in Bank of Nova Scotia (BNS).
  • I am also looking to add an insurance name to my portfolio. Some of companies that I am looking at are Intact Financial (IFC.TO)Power Corp (POW.TO) and Chubb Corp (CB).
  • Main Street Capital Corp (MAIN) is a business development company specializing in long- term equity, equity related, and debt investments in small and lower middle market companies. MAIN does not seek to invest in start-up companies or companies with speculative business plans, but rather in traditional or basic businesses. MAIN is a high yielding dividend payer with a yield close to 7%.
  • Another sector that has shrunk in my portfolio is healthcare. I will be looking into possibly adding a new name here: Some on my watchlist are: Amgen (AMGN), AbbVie (ABBV), and Glaxo SmithKline (GSK).
  • Some industrial names on my radar are: Parker-Hannifin (PH), Emerson Electric Co (EMR), and General Dynamics (GD).

Dividend Increases

I am expecting dividend increase announcements from the following companies in my portfolio.

  • Archer Daniels Midland (ADM) – last increase was in Dec 2013 by 26%. I was expecting an announcement in December, but that never came. The dividend raise is imminent as the management has made it clear that the payouts will be increasing. Read the ADM analysis here.
  • BCE Inc (BCE) – last increase was 6% in Feb 2014. Read my BCE analysis here.
  • Thomson Reuters Corp (TRI) – last increase was 8.82% in Feb 2014.

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.

Disclosure: Long ADM, BCE, BNS, CVX, GE, QCOM, REI.UN.TO, T, TRI. My full list of holdings is available here.

 

Photo Credit: Alexey Kljatov

 

12 thoughts on “Outlook for February 2015

  1. R2R,
    The Canadian banks and the energy sector continues its downward trend, I see lots of opportunities there together with T, GE, VZ, CAT hopefully they remains on the lower side. Like you my healthcare sector needs to add some position. I am continuing to watch BAX and JNJ for that.
    FFF

    • Those are some interesting names, FFF. I have never been crazy about CAT, but I know ppl love some things about that company. I should also add VZ to my watchlist and start adding it. Once I get T to a full position, I will start looking at VZ and start adding it after.

      Yes, BAX is something that I need to look into as well. As always, JNJ is trading at quite a premium and I am not ready to price the price for it. I want to add JNJ when it comes down.

      Thanks for sharing your thoughts. Best wishes
      R2R

  2. R2R,

    Some solid choices up there. I like some of the Canadian banks after recent weakness. BNS in particular is one on my watch list right now.

    Industrials like GE and EMR also seem pretty solid here.

    Best of luck!

    Cheers.

    • The Canadian banks are trading at quite a discount. Hard to resist at such low PEs and forward PEs. BNS is a great bank and very well diversified internationally. Good stock to own for the long haul.

      Thanks for stopping by
      Best wishes
      R2R

  3. I added to my T holding in DiVGro yesterday — will post on it soon.

    I’ve owned MAIN in my income portfolio since 2010. Up 113% including dividends. Payback percentage now 46%. Return is 29% annualized. Nice little investment, I’d say 🙂

    Best of luck!

    • Thanks for sharing, FerdiS. Thats a fantastic return for MAIN. Of the BDC companies, it seems to be the best run and is also seeing some insider buying (which is becoming rarer). That 7% dividend sure adds up over the years eh?

      cheers
      R2R

  4. Hi R2R!

    Great post. I agree that the market is richly valued but there are still some pockets of value. Canadian banks are interesting, particularly National Bank of Canada. Large oil companies are also probably undervalued.

    We have to be greedy when others are fearful.

    Cheers!

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