Outlook for March 2015

February came and went in a blink of an eye. The short month turned out to be a great month for the equity markets – with the month recording the best performance since Oct 2011. The equity indexes continue to linger at all-time highs looking for direction heading into March. The FOMC indicated that most officials would rather wait before raising rates, which of course did not come as a surprise for a lot of investors considering there were close to 20 rate cuts around the world in Jan & Feb 2015. In fact, with some good news coming later in February, the chatter of rising interest rates was heard by the Fed, who swiftly suggested that there would be forward guidance before any rate increase. Some economists are now suggesting that the rate hike could get pushed back to September. We will have to wait and see how things develop.

Outlook for March 2015

On the home front, the Canadian central bank is going to take a wait-and-see approach after cutting the interest rates in January by 25 basis points. Most economists are expecting another rate cut – with some predicting this spring and some predicting a rate cut in summer. Whether they will or not, the name of the game remains the same for us. Save, invest and pay down debts.

In February, we started putting together an index-based ETF portfolio for my wife’s portfolio. In order to avoid buying at a market top, we started off with a modest amount of funds put to work. We will continue building our position in March and in the coming months over the course of the year. The portfolio details are shared here. As for my portfolio, I 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.

Portfolio Considerations

Some of the stocks that I am keeping an eye on from my existing holdings:

  • Amgen Inc (AMGN) is a biotech giant and has a relatively short dividend payment history (since 2011). Nevertheless, the numbers are impressive, with a 3-yr DGR of 63% and the company raising its dividend by 30% last year and guiding to raise it again by 30% this year. I started with an initial position of 10 shares last month. I will be looking to add more shares to my portfolio possibly this month. See my post on why Amgen is a great buy here.
  • 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 also recently outspent Verizon (VZ) during the spectrum auction, which will help them grow further.
  • 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.
  • Magna International (MG.TO) is the most undervalued stock in my portfolio. The fundamentals are absolutely fantastic and because this company is relatively unknown outside of Canada, unless you follow the automotive sector closely, the stock prices remain subdued. I am tempted to add to my position in this automotive parts giant with a 5-yr DGR of 76%. Magna raised its dividend last week by 16% and announced a 2:1 stock split.

Possible new additions that I am looking at:

  • Baxter International (BAX) is a medical device and pharmaceutical company. The company is on the verge of spinning off its biotech arm in mid-2015, called Baxalta, which is expected to create immense value for shareholders. Baxter has a record of spinning off companies which are either successful independently (Edwards Lifesciences was a BAX spinoff), or subsequently acquired by others (Caremark spunoff from BAX was acquired by CVS, Allegiance Healthcare spunoff from BAX was acquired by Cardinal Health). This dividend challenger has a 8-yr track record of raising dividends with a 5-yr DGR of 14.2%.
  • United Parcel Service (UPS) is seeing a lot of interest from hedge funds and institutional investors. I really like the outlook of the company and like the fact that it has a wide economic moat. The company has a track record of raising dividends for 6 years in a row with its last announcement coming in Feb 2015 for 9%.
  • 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) and Bank of Montreal (BMO) or add to my existing position in Bank of Nova Scotia (BNS) or Toronto-Dominion (TD). Read details of why I think the banks are attractive to buy now.
  • 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).
  • Some industrial names on my radar: Parker-Hannifin (PH), Emerson Electric Co (EMR), and General Dynamics (GD).
  • For too long, I have ignored the utilities sector as the P/Es are high and the yields depressed. But I am going to consider adding some utility names to my portfolio, even though they might not be a bargain. In the past, I have owned Southern Company (SO), and the current PE of 20 and yield of 4% looks decent. If you have any other recommendations, please share them below.

Dividend Increases

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

  • Bank of Nova Scotia (BNS) – last semi-annual increase was 3.12% in Aug 2014.
  • Qualcomm (QCOM) – last increase was 20% in Mar 2014.
  • Wells Fargo (WFC) – last increase was 16.7% in Mar 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 AMGN, BNS, GE, MG.TO, QCOM, T, TD, TRI, WFC. My full list of holdings is available here.

Photo Credit: Global Panorama

26 thoughts on “Outlook for March 2015

  1. R2R,
    I am eyeing some more BAX to add with my current position there, its just the market is on all time high right now, I am kinda hesitant to pull the trigger, I will probably make a small purchase this week or next week for my regular buy then wait for big buys during big dips. I am sitting on some cash right now as February was a lazy month for me with this market condition. Have a great March!
    FFF

    • Hey FFF,
      Good to hear that you got into BAX earlier. I think its a great company and nows a good time as any to add. The company is attractively valued and Im sure the dividends will keep flowing…probably not for the new spunoff company, but BAX will probably continue paying.

      Thanks for sharing your thoughts
      R2R

  2. JC says:

    I really hated to see the markets rebound in February, although my net worth really enjoyed the bump. I was just getting back into the swing of my financial life and investing and unfortunately missed out on some good opportunities. I think the energy sector is providing some great opportunities but I’m way overweight that sector so I’ll be very cautious about adding, especially since my income is tied to the E&P side as well. I need to look into T some more because I wouldn’t mind adding to my position there if they can start providing better growth and hopefully better dividend growth as well. The token $0.01 raises are nice but they don’t do much in a normalized inflation environment. EMR is looking really nice here and I might have to add to my position. Great long term track record and I think it’s a really solid entry point. I’m also looking at the Canadian banks as well as a few select names including UPS and TROW. If only I had more capital available to invest it would make the decision making process much easier.

    • Hi JC,
      I know the feeling. Just hang in there, the market is bound to get irrational sooner or later, providing with some good opportunities. I think you are being prudent by not being over invested in energy esp since your income is dependent on that sector.
      T has a lot to give over the years. Im sure the company will grow their topline numbers and hopefully the dividends will follow. Canadian banks looks attractive right now – you are looking at teh right place for value. Good luck.

      R2R

  3. Great post R2R. So many quality companies yet so little capital. Sigh… Lol. What a dilemma. I would love to add to some of those companies but damn tax season! Slow and steady. Take care my friend and keep it up. Take care bud.

  4. R2R,

    I can only laugh as I initiated a position in one of these this morning, high PE be damned 🙂

    Great ideas with a nice mix of yield and growth among them. I’m still wary of the Canadian bank but have an eye on BNS (I already own some) and TD.

    Best,
    DWC

    • Hey DWC,
      Last few months, Ive had to buy stocks at over 20 PE as well. I’d rather pay a bit more than settle for low quality companies. BNS should be announcing their earnings this week – looking for a dividend increase there.

      Happy investing
      R2R

    • I think 65 and 95 for BAX and UPS respectively are good entry points. I am willing to go anywhere between 65-70 for BAX. The current yield of 3% is a good starting point. For UPS, anything under $100 is also pretty good I think.

      R2R

  5. I’m looking forward to picking up something this month, and haven’t narrowed it down yet. As others have said, the bump in the markets the last two weeks have not been welcome by any stretch of the imagination. I do know I’ll be adding some cash to my P2P lending accounts to continue working towards my goals there.

    • Thats a good option too, w2r. We have a pretty good cash position now and are thinking of diverting some extra cash into paying down extra on our debts (mortgage) as well.

      Best wishes
      R2R

  6. Feb has been very solid. Actually 2015 has started out quite nicely. Things are getting pretty toppy with not many deals out there. CDN banks look like solid buys. I for one is going to tread lightly and maybe even increase my preferred shares position.

    • Hmmm Ive never delved into preferred shares. I should look into those. You are right – the banks are trading at a discount…and I will be slowly adding to my position over the year. Im trying hard not to make big purchases there and want to average in.

      Thanks for sharing your thoughts
      cheers
      R2R

  7. You know my take on POW and RY. But they are both pricey I think, although POW is still relatively cheaper.

    I like what you are doing for your wife, because I am doing quite the same (50 ETF / stocks) with mine (although she’s my fiancé not wife!).

    Thanks for sharing!

    • Good to hear that you are following a similar strategy for your fiancee. I am liking POW the more I read into it…it sure is getting higher and higher on my list.

      Thanks for stopping by
      R2R

  8. We are looking at similar stocks for potential purchases. UPS is looking very interesting to me. I’ve been monitoring BAX as well. Looking forward to see what you pull your trigger on.

    • UPS is catching attention across the board….and I think its fairly valued now. Wondering if I should pull the trigger or wait. The all-time market high makes me want to wait.

      Best wishes
      R2R

  9. Great bunch of companies here. Crazy that CAH is doing their own spin-off this year too, so an original owner from Baxter would have yet another company in their portfolio! Have you considered TRV or AFL for insurers? Both are also attractively valued at the moment. I’m also very intrigued by Magna International which I know very little about. You’ve provided some excellent homework for me! Thanks for sharing and I’m eagerly waiting to see what you decide on!

    • Hey Ryan,
      I dont follow CAH that closely, so wasnt aware they are spinning off something now. I looked at AFL and realized that most of their revenue comes from Japan – and considering the deflationary headwinds and the currency devaluations, I decided to stay away from it. TRV – I havent looked into it…I realize that its a DJIA stock, will look into it – thanks. Magna is a gem, imo and definitely needs a close look. If you are looking for a value play in the current frothy market, Magna definitely fits the bill.

      Best wishes
      R2R

  10. I’m also looking at AMGN and T this month… KO is another one. Just hoping we get a good entry point soon as the market appears to be cooling off slightly at least!

  11. MU says:

    I have similar symbols on my watch list. Will watch closely on BAX, the Canadian banks, EMR, and SO. Thank you for sharing.

    • Thanks for stopping by and Welcome to Roadmap2Retire.com. Your blog is new to me and I’ll be sure to stop by and check it out.

      Those are some strong names that belong in all portfolios.
      Best wishes
      R2R

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