Outlook for April 2015

Outlook-April2015

Well, things are progressing along nicely. The Fed is being clear with its messages having dropped ‘Patience’ from its speech in March. Current consensus points to a rate increase in fall of the year from the economists – which remains to be seen. In another clear signal at the end of March, Yellen said that rates will see a gradual pace of rate rise starting later this year. This is of course, barring any signs of deflation in the economy. On the home front, the Canadian central bank is holding still with no other indications of further rate cuts. BoC recently indicated that they are starting to see the effects of oil rout in the economy and expect the positive effects from the January rate cut to take a long time.

What does this mean for the equity investments? Based on how the market has reacted when the talk of rates rising comes up, there’s almost always a knee-jerk overreaction in the bond-substitute sectors such as REITs, MLPs and Utilities. Current data suggests that future rates will be much lower than what we have seen in the past, so I will be looking for opportunities over the coming months for picking up new stocks in those sectors or adding to my holdings.

Outlook for April 2015

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 over the course of the year. The portfolio details are shared here. As for my portfolio, my last purchase has dwindled my cash position, but still have decent amount of cash to fund a purchase in April. As discussed in my 2015 goals post, I am on target maintaining 3-5% of cash position to take advantage of market corrections.

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. 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 recently by 16% and the stock split 2:1.

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%.
  • 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).
  • In the food and beverage sector, I am looking to add Coca Cola (KO), PepsiCo (PEP), or Starbucks (SBUX).
  • I will be looking to add to my pipeline positions in Kinder Morgan Inc (KMI) or InterPipeline Ltd (IPL.TO), but since a big portion in my portfolio in those stocks, I might look at adding another pipeline to my portfolio: looking at either Enbridge (ENB) or TransCanada (TRP).
  • I am also looking at adding another REIT to my portfolio: in this space, I want to add a healthcare REIT to complement my position in Omega Healthcare Investors Inc (OHI) and looking to add either HCP Inc (HCP) or Ventas Inc (VTR).

Dividend Increases

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

  • Apple Inc (AAPL) – last increase was 8% in Apr 2014
  • Chevron Corp (CVX) – last increase was 7% in Apr 2014
  • Johnson & Johnson (JNJ) – last increase was 6.1% in Apr 2014
  • Kinder Morgan Inc (KMI) – last increase was 2.27% in Jan 2015
  • Omega Healthcare Investors Inc (OHI) – last increase was 1.92% in Jan 2015
  • Jean Coutu Group Inc (PJC.A.TO) – last increase was 17.6% in Apr 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: My full list of holdings is available here.

Photo Credit: Jeff Kubina

18 thoughts on “Outlook for April 2015

  1. Hey R2R. Thanks for the post. I believe we’re gonna have a market correction later this year. Janet yelled made it clear that rates will rise. When that does it’ll give us a bit of an opportunity to buy some quality companies. But we will see. In the mean time I’m gonna build up a bit of cash to take advantage. I like your stock choices. I’m gonna add to ENB and TRP and Canadian banks soon. Take care and have a happy Easter. Cheers my friend.

    • I agree DH. Theres going to be a correction this year…I will be holding onto some cash hoping to move when that happens. The pipelines are already at a decent level and I sure dont mind adding to my position or initiating a new one at the current prices.

      Thanks for stopping by
      cheers
      R2R

  2. That’s a nice list of companies, and I’ve been watching several of them myself.

    T has about 9% weight, so I can’t add any without a solid price. If it drops another buck or two, I’ll likely add a little.

    GE has about 3.5% weight and seems like a reasonable buy. I might take it up to 5% in the near future.

    KO has 8% weight but is quite close to my fair value price of $40. I might add a little, just because it’s KO. I’m a fan of dependable dividends. I have a lot of PEP as well, but it still seems a tad pricey.

    For REITs, I own VTR and HCP. Both are less than 3% weight. I like HCP’s current value. Now that they have seemingly settled the issue with new HCR leases, I want to watch the stock for a bit. Both VTR and HCP seem like great companies though.

    I own both CVX and XOM. Their ex-div dates are in May and both are expected to increases their dividend then. It will be interesting to see what action they take in light of depressed oil prices. Good luck to us all.

    Steve

    • Those some huge positions in T and KO. Although I dont blame you – they are solid companies and cant go wrong with them. Looks like you own the two REITs that I want to own – HCP and VTR. Thanks for the update on HCP and HCRManor…I was wondering if that was settled…just looked up the news. Maybe thats why there has been some advancement in the HCP stock price?

      As for the oil companies – I own CVX but not XOM. Ive looked at XOM in the past but decided against it as my energy exposure was already too high. The energy trade sure is very interesting to follow. I will be watching it to see where things go.

      Thanks for stopping by.
      R2R

  3. Thanks for sharing your list of possible new buys. I’m looking for an opportunity to buy KO. So far, its been too expensive for me, but after the recent drop, it may be just the right time to get in. Good luck and keep up the good work!

    • Same here, FerdiS. The premium on KO (and PEP) is always quite high and I just need to bite the bullet and initiate a position. The fact that KO is calling 2015 a transitionary year is good for keeping the prices a bit depressed and a good time to initiate a position. I will be watching it closely and made a decision on which one to pick up.

      Best
      R2R

  4. R2R…

    Nice list and nice diversification. My only suggestion would be to add a railroad company or two into the mix. There’s a lot of nice choices and most of them are excellent. I wish you the best.

    Respectfully,
    Dennis McCain

    • Thanks for the input Dennis. I own CN and its a pretty sizeable position, although not a full position by any means. I will be keeping an eye on it to see if I want to add to it if theres weakness. I havent looked at UNP lately which is my second choice for a railway company – if thats attractive, I might bump it up my watchlist.

      Thanks again. Hope things are progressing well on your end.
      R2R

  5. Thanks for sharing your April consideration list. A number of these stocks that you mentioned are on my list too. Both OHI and HCP look quite attractive to me at this point, would love to add more healthcare REITs.

    • Cant go wrong with either of those names, Tawcan. Looks like the HCP’s issues with HCRManor are behind them…atleast thats what I gathered from the quick read this morning. HCP has lagged because of some issues such as ousting the CEO and now the HCRManor issue. Hopefully, they can put this behind them and move on.

      Thanks for sharing your thoughts
      R2R

  6. If and when interest rates start to rise, I am hoping to average down and double up on my holdings. We’ll see what happens in the next 6 months. The hard thing is to sit on the cash and not have it work for you. But, like they say, cash is a position!

    Cheers!
    Ron

    • Agreed, Ron. Cash is a position and having some in reserve is always a prudent thing to do. I find it hard to sit on cash though, but try to remember that last year I missed out on a lot of good opportunities due to lack of cash.

      Best wishes
      R2R

  7. I see some great names in your April consideration. AT&T and CocaCola as well as all Canadian banks seem attractive at this point. I will probably buy more of Canadian stocks as the US exchange rate is a bit out of whack. Thanks for sharing and keep up the great work!

    BSR

  8. R2R,

    Thanks for sharing some of your ideas!

    So many stocks, so little capital. My eyes are bigger than my wallet, that’s for sure.

    Happy shopping this month. 🙂

    Best regards.

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