Outlook for May 2015

Outlook May 2015

The Sell-in-May-And-Go-Away season is upon us. For those who are unaware, the theory goes that markets tend to perform better when stocks are held from November to May and investors should sell their stocks in May and rather enjoy the summer. While the effectiveness of this strategy is debatable, for long term investors such as myself – May can provide a good buying opportunity. The Sell-in-May effect has been missing in action for the last couple of years, which could possibly be attributed to the QE and/or the buyback programs. The buyback trend is still going strong, so we may not see one this year either. Nonetheless, I stay on the sidelines waiting for an opportunity.

The Fed has started turning a bit hawkish and expects the economy to pick up despite a weak first quarter. The Fed has hinted and left a summer/fall hike on the table. The market seems to be pricing in one rate hike in 2015 and three rate hikes in 2016. On the Canadian front, the Bank of Canada (BoC) is taking a wait-and-see approach after the rate cut in January. BoC expects to see some major headwinds in western Canada after the oil rout, but also sees better times for eastern provinces, which have a bigger manufacturing base.

Outlook for May 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, I hold a decent amount of cash 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.
  • 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.
  • Main Street Capital (MAIN) is a Business Development Company that operates in southern US. The company pays monthly dividends and currently yields 6.7%. The high-yielding dividend grower also pays semi-annual supplemental cash dividend and announced last week an extra dividend of $0.275/share in June on top of the regular monthly dividends.
  • After the recent rises in General Electric (GE) and AT&T (T), I have decided to put those companies on the back-burner as I seemed to have missed the boat on adding at an attractive price. I would still like to add them, but the recent rise in stock prices has pushed me to the sidelines when it comes to these two companies.

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 Tyson Foods (TSN), Coca Cola (KO), PepsiCo (PEP), or Starbucks (SBUX).
  • I am looking to add 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 am considering international office REIT company Dream Global REIT (DRG.UN.TO) and/or healthcare REIT to complement my position in Omega Healthcare Investors Inc (OHI) and looking to add either HCP Inc (HCP), Ventas Inc (VTR) or Health Care REIT (HCN).

Dividend Increases

I am expecting dividend increase announcements from just one company in May.

  • Cineplex Inc (CGX.TO) – last increase was 4.2% in May 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: Andreas Poike

21 thoughts on “Outlook for May 2015

  1. I don’t plan on selling any holdings in May, and if the market has a lousy run from now until November, that’s just fine with me! Like you, I’m waiting on the sidelines for some better opportunities and just nibbling a bit every now and then.

    Thanks for sharing your stock watchlist for this month! Biotech has been getting hit pretty good this week, so a good opportunity to add more shares of AMGN might be fast approaching.

    Happy Investing!

    • I sure hope theres a selloff in May – I am itching to buy something.
      The biotech is selling off indeed and I will be adding to my AMGN if it falls more.

      Happy investing
      R2R

  2. Nice list and quite diversified. I myself have considered both BAX and CB. As for that adage, I don’t buy into it, no pun intended. I am in it for the long term. So if people are going to sell, good for us as our stocks will essentially be discounted. Thanks for sharing.

    – HMB

  3. I plan to continue adding more positions to our portfolio and do not plan to sell anything in May. Looks like we share similar watch list. 🙂

  4. I must say, if the FED wants to raise interest, just raise it. The market will go down a little bit, and then business as usual. However, if they keep holding back, let investor playing the guess game, the market will remain volatile. Buffett said today that the US is not a problem, we are growing, it’s the Europe and China that will affect us.

    • Ding ding ding…you are right on. The Fed should have raised rates long time ago – and its ridiculous that they look at the stock market for signals and let it dictate their moves – the whole temper tantrum episode was just embarrassing for the Fed.

      Thanks for stopping by Vivianne.
      R2R

  5. If there really is a sell off in May that could be an opportunity, I am picking up some extra shifts at my both jobs to reload some ammo of fresh capital, for my watchlist are JNJ, PG, MMM, APPL, XOM. I kinda missed the boat on both GE and T and I hesitated to pull the trigger since I own almost 200 shares on each stocks.

    Take care

    • Those are really strong names to own, FFF. Yeah…Im sure we will get more opportunities with GE and T as well. Thats a pretty large position…my positions arent that big.
      Looking forward to see what you buy

      R2R

  6. Thanks for sharing your insight for May R2R. Like you, I’m feeling there will be a pullback when Janet Yellen raises the rates after June/summer sumtime. When they do, that’ll be the start of good buying opportunities. I like the watchlist. All quality. I got greedy thinking canadian banks would fall further but they all went up 10% from where I wanted to buy them so I’m gonna wait for them to come back down. I’ll buy BNS/ TD / RBC when the time comes.
    You take care of yourself and have a nice weekend my friend. Cheers.

    • DH,
      The volatility will eventually turn the market irrational – best we can do is have enough dry powder. The banks still have some headwinds and Im sure there will be good opportunities there as well. Thanks for stopping by and sharing your thoughts.

      Have a great wknd
      R2R

    • Yeah…the deflationary risks are something that all central banks are fighting…a correction is overdue indeed.

      Thanks for stopping by. I’ll be sure to stop by and check out your blog
      R2R

  7. I agree with you. If people start selling in May I will be buying, so if they want to panic and send stocks to abyss let them do it. I am saving cash and hopefully I will be able to pick some nice names.

    I like MAIN from your selection and have been watching it for some time. I might be adding it to my portfolio at some point too. It’s a good BDC among others.

    • MAIN has some great returns…I dipped my toes in BDCs and MAIN in Feb and like it…I might add more if I have enough capital left over. Its one of the best run and slightly more conservative BDCs out there.

      cheers
      R2R

  8. R2R,

    The adage “sell in May and go away” is nothing but a self-fulfilling prophecy. As such I don’t pay any attention to it. Like everyone else here I’m in it for the long-haul. Besides, if the market performs badly over the coming months that means we can scoop up stocks ‘on the cheap’ – win for us!

    Great list of stocks. I’ve been looking at SBUX in particular, but the low yield puts me off a little bit. Of course, the high growth rate makes up for that, so we’ll see if I can’t find any other opportunities out there.

    Best wishes,
    NMW

    • NMW,
      A lot of things have turned out to be self-fulfilling prophecies. Most of the technical analysis market is based on that. I hope the market turns irrational, so that we can find some good buys.

      SBUX is a great company and Ive been watching for so long to get better prices only to get disappointed.

      Happy investing!
      R2R

  9. Agree, the sell in May and go away has not played out the last several years. I like the Canadian banks too, particularly (BNS) but missed the boat on buying earlier this year. They are on my watch list to buy on any decent pullbacks. The R.E.I.T.S have been pulling back so I am keeping an eye on them as well. My recent buys have been (XOM), (BP), (RDS.B), (PM) and my first R.E.I.T (WPC). Thanks for sharing your watch list, always looking for investing ideas.

    • Explorer,
      Thanks for stopping by and the comment. Your blog is new to me – will be sure to stop by and check it out.

      There are some still good finds esp outside the US..the Canadian banks have recovered a bit, but there will be plenty of opportunities coming up as Canada wades through some rough waters in the coming months. Those some solid buys – energy def has some good value finds – WPC seems to be popular with a lot of DGIs these days – I will have to look into it.

      cheers
      R2R

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.