Rob Lauzon, chief investment officer, Middlefield Capital Corporation

FOCUS: North American equities

MARKET OUTLOOK:

It's a confusing time for investors as central banks are hiking rates into a slowing economy. The strong U.S .dollar is an earnings headwind for multinationals as well as for the economies of countries with weak currencies that import commodities. The general view from economists is that there is a 6-12 month lag between rate hikes and impacts on earnings. As the effects of higher interest rates permeate through the economy, different sectors may experience downturns at different times, resulting in a rolling recession. Third-quarter and 2023 earnings estimates for North American companies have started to come down since peaking in mid-June, except for energy. Overall, we do not anticipate a deep recession in North America and believe that North American companies are currently well positioned relative to global alternatives.  

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

Granite REIT (GRT.UN TSX)

August 2022 $79.60

Demand for industrial real estate is intact. Seeing new demand from on shoring, retailers holding more contingency inventory and third-party logistics (FedEx).  Valuation is very attractive at $75, net asset value is $90+. Balance Sheet is amongst the cleanest of Canadian REITs, with 28 per cent leverage and a low dividend payout ratio (room to grow dividends). Attractive asset mix and great locations – GTA, U.S. hub cities (Cincinatti, Savannah Georgia, Dallas); Netherlands and Germany. Focused on modern facilities fit for e-commerce and modern logistics.

TransAlta (TA TSX)

September 2022 $12.05

We have a constructive view of the power pricing dynamics in Alberta. The company continues to progress on its clean power growth plan. Two projects currently sit in the “advanced stage development” bucket if finalized as expected later this year will provide upside to street estimates. Having a strong relationship with Brookfield via board members and stock ownership is a strategic positive in our view. The shares yield 1.6 per cent.

Tidewater Midstream (TWM TSX)

September 2022 $1.25

The current strong commodity price environment, including frac spreads, is a tailwind to Tidewater achieving its growth opportunities. Considerable valuation expansion potential exists for the equity as further reduction in debt levels coincides with achieving targets in executing the Pipestone phase two expansion in addition to its renewable diesel plant. We feel the dividend is safe; the shares currently yield 3.2 per cent each year.

PAST PICKS: October 18, 2021

Okta (OKTA NASD)

• Then: $259.92
• Now: $64.73
• Return: -75%
• Total Return: -75%

Topaz Energy (TPZ TSX)

• Then: $18.25
• Now: $20.58
• Return: 13%
• Total Return: 17%

Enphase Energy (ENPH NASD)

• Then: $179.97
• Now: $304.11
• Return: 69%
• Total Return: 69%

Total Return Average: 4%