Outlook for July 2015

Its the official start of summer and things are starting to shake up. Plenty of news in the business and finance world to roil the markets – from Greece about to default, Puerto Rico announcing that it may not be able to repay its debt, Chinese market seeing a drop, and the list goes on. Amid these global turmoils, comes increased volatility in both the stock and bond markets and the central banks remain in focus to watch out for the investors. Amid these concerns, the risk of interest raise in 2015 keeps slipping to a later date and the gravy train continues. On the Canadian front, the risk of recession still looms with the oil market seeing major cutbacks during the first half of the year. Economists still expect interest rate cuts from the Bank of Canada to prop up the economy – and I will be looking forward to it as a consumer and investor.

Outlook for July 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 well above the 3-5% of cash position target to take advantage of market corrections.

Portfolio Considerations

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

  • Magna International (MG.TO) is the most undervalued stock in my portfolio, although the stock price has seen quite a run-up in the last couple of months. The fundamentals are absolutely fantastic and this company is relatively unknown outside of Canada, unless you follow the automotive sector closely. I am tempted to add to my position in this automotive parts giant with a 5-yr DGR of 76%.
  • Power Corp of Canada (POW.TO) is a financial conglomerate. While the main focus is insurance and asset management, the company invests in various other sectors of the economy such as utilities, media etc. The company announced its first dividend increase after six years in May 2015 with a 7.3% bump in dividends. I initiated a position after the announcement and will be looking to add further to this position. Details of this purchase shared here.
  • Inter Pipeline Ltd (IPL.TO) is a pipeline company based in Alberta, which has seen some pressure lately. While the company held up really well in the oil downturn, the latest elections in Alberta resulted in the NDP party coming to power, who have indicated to raise minimum wages, income taxes and impose climate regulations, which are all negative for the industry. However, I am confident that the companies will adjust to the new norm and the stock is approaching an attractive valuation.
  • The railroad industry is facing major headwinds, bringing the stock prices down to very attractive levels over the last few weeks. I am keeping a close eye on my holding – Canadian National Railway (CNR.TO) (CNI) and hope to average down on my cost basis. Read my dividend stock analysis of CN here.
  • My tech holdings are also looking attractive and I am considering adding to my positions in Apple Inc (AAPL) and Qualcomm Inc (QCOM). Tech companies remain one of most cash-rich sectors, and have turned to stock buybacks as a method to return money to shareholders.

Possible new additions that I am looking at:

  • I am looking to add another company in the insurance sector. Shortlist here includes Manulife Financial  Corp (MFC), and Sun Life Financial Corp (SLF)I also had Chubb (CB) on my shortlist over the past few months, but it was just announced yesterday that ACE is making a move to acquire the insurance giant in a $28.3B deal, resulting in a stock price jump of ~27%. I have decided to drop this from my watchlist for now.
  • In the food and beverage sector, my watchlist includes Tyson Foods (TSN), Coca Cola (KO), PepsiCo (PEP), and Starbucks (SBUX).
  • In the industrial space, I am looking at Union Pacific Corp (UNP), Norfolk Southern (NSC), Raytheon (RTN) and General Dynamics (GD).
  • Last month I sold my Utilities ETF and am looking to initiate a position in a dividend growing utility company. I still havent made up my mind on the company, but I shared some of my thoughts in this post with an overview of the utilities sector, and this post specifically on the water utilities sector.  Some of the companies that stood out for me were: Southern Company (SO), Eversource Energy (ES), NextEra Energy (NEE), Canadian Utilities (CU.TO), American Water Works (AWK), and Aqua America (WTR).

Dividend Increases

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

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: Dennis Jarvis

21 thoughts on “Outlook for July 2015

  1. Nice outlook and solid list. I was honestly a bit disappointed with the weak pullback and then bounce back earlier this week. However, when you think about it, there really are no other places to get a good return on your money, so it makes sense for most to keep their money in the market…for now. I am currently going over my portfolio sector weights. I am really low on in a few sectors. Out of those, I really want to add more healthcare and utilities. Thanks to your post I have a lot to chew on, but am currently considering SRE. We’ll see. Thanks for sharing and hope you have a great time shopping in July!

    – HMB

    • Yeah…it was a quick turnaround. The Greek issue has been known for a long time and I figured that the market wont be too shocked that they would default. There are still some other issues that could topple the stock market though – Puerto Rico, China, bond market etc. Good idea to have a close look at the diversification. Its the best tool an investor has to protect against downturns. I will have another close look at SRE and see if I need to reconsider and add to my watchlist. Thanks for sharing.

      Happy investing!
      R2R

  2. R2R,
    Thanks for sharing. I will review some of your considerations.
    I’ve been eyeing QCOM for the longest time. No debt is a strong criteria for me.
    CB too – but this is off my list now.
    D4s

    • Yeah QCOM is looking really enticing in the low 60s – all those downgrades have brought the stock price down quite a bit. The no debt is huge and will be great in the long run.

      R2R

  3. Bogdan Mihai says:

    I find your blog so well written, that I’ve decided to follow your posts. Normally, I would just sign up for updates, but I can’t see a way to do so without a comment, so here it is 🙂

    Keep up the good work.

  4. Nice list buddy. I almost purchased some shares of Power Corp of Canada this week, but held off. Union Pacific and Pepsico are on both of our lists as well. Here’s hoping for lower prices in the near term.
    -Bryan

  5. R2R,

    Just bought some UNP myself, lots of good choices otherwise. I am also fairly excited about the CB news as a shareholder, that is tough to miss out on; my condolences.

    – Gremlin

  6. Nick says:

    Always a helpful read. Thank you for continuing to share. I found it interesting that you didn’t include your Canadian banks (BNS specifically) on your watch list as it appears all of the Canadian financials have been hit lately. How do you view the big five banks at this time? I read your analysis on the big five, but wanted to see if your views/assessment of the risk has changed.

    • Hi Nick,
      I just picked up more BNS last month and my financial sector is pretty heavy. While the banks are still at a good valuation level, I decided that I should put money to work in other sectors before I circle back to financials. I would still buy the Cdn banks at these levels if I didnt have a decent exposure already (Im hoping to return to buying the banks later in the summer). Most of them are fairly-to-under valued. Canada is on the verge of a recession, if not in one already, so naturally the financial sector suffers. A great time to invest in them and pick up more shares.

      Hope that helps
      R2R

  7. Hey R2R,

    Thanks for the informative summary of what’s going on around the markets.
    I remember you first telling me about Chubb a while back and saw the insane run-up they just experienced and thought “Damn”,

    We share some names here on what companies we’re having a look at throughout the month of July, that’s good to see.

    Always a pleasure
    DB

  8. Hey R2R,

    I like that you share your watchlist of stock that you’re considering investing in. I’ve generally not shared in any great detail stocks I’m considering investing in, but am looking to change that shortly. It’s always interesting to hear and share investment ideas.

    Your portfolio looks pretty solid too, and you sound well placed no matter what happens over the course of the year, with some cash to take advantage of potential opportunities. I’m pretty low on cash at the moment, but generally prefer to be fully invested anyway, and invest as soon as I have some extra cash available – helps avoid the worry about timing the market!

    Cheers,

    Jason

    • Welcome, Jason.
      Glad you like the sharing of the watchlist. I find that it puts a few things in perspective…and allows me to roughly stick to the plan instead of jumping on new found opportunities when I feel excited and with cash in hand.

      The cash situation was a bit of a learning experience from last year – I missed out on a bunch of good investment opportunities due to lack of cash in my investment accounts. I made it a goal this year to maintain atleast 3-5% in cash. In addition, moving my wife’s accounts from expensive mutual funds to ETFs (which we are slowly building positions in), we maintain a healthy 15-20% in cash. Its hard not to just put that money to work…hoping to get some good opportunities.

      Thanks for stopping by and the comment. Your blog is new to me..I’ll stop by and check it out.
      R2R

  9. A KMI dividend increase on the way? Huzzah!

    I can definitely say that the railroads are looking great. I have a position right now with NSC, but am looking to initiate a position with UNP. Nothing like owning railroads on both sides of the US.

    The macroeconomic situation is of limited importance to us in the long run, but provides a great short term opportunity to buy great companies at discount prices. I welcome more market volatility.

    Sincerely,
    ARB–Angry Retail Banker

    • Likewise, ARB. Owning railroads like UNP and NSC will give you pretty much the whole continental US coverage. A great opportunity due to the ongoing volatility.
      KMI raises its dividends every quarter…and even though they gave us a big raise last quarter, I am expecting one again this year due to the promise of $2 per share. Lets see if KMI can keep its promise…I remain optimistic.

      Happy investing
      R2R

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