John Zechner's Top Picks: Shaw, Keyera and SLV
While some recent economic data has surprised to the upside, we attribute that mostly to the veracity of the initial decline and some initial re-opening buoyancy. We are wary of the optimism as airlines, restaurants, theatres, theme parks and shopping malls will not be returning to normal levels for a very long time — if ever.
Given the overall strength of the second quarter rally and the economic risks still present, we lightened stock positions throughout the portfolio and shifted further towards safer, higher-yield stocks. We sold oil stocks after recent gains as we see the market struggling to move prices beyond the current US$40 range, where few energy stocks are profitable.
Rather than taking large “macro” positions on the stock market, we have stuck closer to a “market-neutral” strategy over the past month by having core long positions in gold while maintaining and adding to positions in defensive and growth areas such as utilities, pipelines and telecom. These areas have dividend yields of 6 per cent or more and valuations of less than 10 times operating cash flows, which compares very well to the more expensive high-growth sectors without the risk associated with more cyclical sectors. We added Canadian banks in March and bought more in the past month as the major six banks all kept their dividends intact and maintained sufficient capital ratios despite three-fold increases in loan loss provisions and a dour outlook for growth.
Although we see little opportunity in bonds at the current time, we added to preferred shares, particularly those with strong credit ratings and little risk of lower rate resets. The sector right now is generating dividend yields of over 7 per cent, with few missed payments or cuts. These are the types of low risk, low volatility and high-yield opportunities that we would prefer to invest in now rather than rolling the dice on an expectation of a recovery to pre-pandemic levels .Sign up for BNN Bloomberg's new weekly newsletter, Home Economics, which aims to help Canadians navigate their personal finances in the age of social distancing and beyond. Have it delivered to your inbox every Friday by subscribing at https://www.bnnbloomberg.ca/subscribe