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Stock Opinions by Andrew Pink

COMMENT

Will the central banks engineer a soft landing without a recession? That's the big question. In 2023, market breadth was narrow with Shopify comprised a third of the TYSX returns, and tech was up 70% that year (only 10 stocks on the TSX). Dividend stocks struggled. But inflation moderated from 8.1% in June 2022 to 3.1% last November. (Next print is on Jan. 18, 2024.) Supply chain shortages faded. GDP was flat. In 2024, the central bank will probably do quant easing next year with 5 rate cuts from 5% to 3.75%, possibly. He expects ever-widening market breadth. Three scenarios: 1) the Bank of Canada makes a policy mistake by leaving rates too high too long which triggers a recession and reduces GDP, 2) there's a soft landing and no recession after rate cuts strengthens the economy and inflation remains contained, which widens the rally more; or 3) inflation picks up higher than 3.1% which leaves the central bank keeping rates higher for longer. Stay balanced, diversified and defensive.

Unknown
COMMENT
BCE Inc.
BCE vs. POW

BCE is more like a bond, given less growth than POW. POW will outperform this year. Insurers have done very well in the past year. Great-West Life is 70% of POW, now trading at a 30% discount to NAV vs. its historic 15-20% discount, so should gain momentum on this alone. The insurers are a little better than the telcos now.

telephone utilities
BUY
Power Corp
BCE vs. POW

BCE is more like a bond, given less growth than POW. POW will outperform this year. Insurers have done very well in the past year. Great-West Life is 70% of POW, now trading at a 30% discount to NAV vs. its historic 15-20% discount, so should gain momentum on this alone. The insurers are a little better than the telcos now.

mngmnt / diversified
BUY
Air Canada

Has higher-than-normal risk now. Bullish case: Air traffic has returned to pre-pandemic levels. During the pandemic, AC increased operating efficiency and right-size its fleet to make them more profitably. Reduced debt a lot to 1x EBITDA from 6x. There's limited downside. Bearish: cheap carriers could pop up to challenge AC on ticket price. If interest rates remain low, then consumer will spend.

Transportation
COMMENT
Perpetual preferred shares or reset preferreds in the next few years?

Perpetuals offer fixed rates, like 6% perpetually. A reset has a basis point feature, like an initial coupon of 6%, then a spread of 200 basis points (always benchmarked to the 5-year government bond). Every 5 years, the latter will reset to 200 BPs above this bond. So, if you believe interest rates are going down, buy the perpetual. If you believe rates rise, get the reset. He expects rates to decline.

Unknown
BUY
Telus Corp

Likes it.  They have higher exposure to wireless than wireline, likes their business mix vs. their peers. These dividend stocks saw a boost when interest rates declined last November-December, and the whole group can trend higher if rates keep falling. He sold a lot of dividend stocks in early 2021 and hasn't moved back in.

telephone utilities
DON'T BUY
Nutrien Ltd.

A lot of moving parts here. Headlines tend to derail the stock's progress. Steer clear of it. Analysts like it, though, but not him. 

agriculture
PAST TOP PICK
Exchange Income
(A Top Pick Jul 06/23, Down 9%)

Still likes it. They guided for 2024, about 5% below analysts' estimates, due to changes in contracts in their medevac business coming on late. Doesn't bother him, though it effected shares. Likes their transparency and sees this as a buying opportunity. They just landed a contract with Air Canada in eastern Canada. RBC just added it to their conviction list.

Transportation & Environmental Services
PAST TOP PICK
(A Top Pick Jul 06/23, Up 4%)

Struggling a little with debt. Solid managers. Industrial REITs are doing gangbusters. Are fully occupied and lease rates are rising. As they have been selling non-core assets, the market has pressured shares. Doesn't think they will cut the dividend. Is moving in the right direction. Lower rates will help.

REAL ESTATE
PAST TOP PICK
Toronto Dominion
(A Top Pick Jul 06/23, Up 8%)

A year ago, they were trying to buy First Horizon Bank, but now have at on of cash because they didn't buy it. But his cash is a drag on earnings for not being deployed. Is the most defensive Canadian stock. though has underperformed peers recently. They will find the right acquisition that works and will clear out money laundering allegations.

banks
BUY
Royal Bank

If interest rates decline as he expects, the banks will absorb any losses that arise, but that loss ratio will be a lot of lower if rates normalize. He likes the whole group, but you're safer with RY. TD offers a lower PE, true. RY is a steady producer, is the highest-quality Canadian bank. 

banks
BUY

CIBC was under the most pressure during the interest rate hikes, but now it's rebounded 26% off the bottom, the strongest bank performer. It will continue to rise. Peers like TD and RY have a big US presence, so if you want that CIBC doesn't offer it. Owns CIBC as a valuation trade. The dividend is safe. Lower rates will certainly help CIBC.

banks
BUY
Tourmaline Oil Corp

Has owned this a long time. The chart has done very well. Every time shares gap higher, he trims to reduce his weighting. TOU is set up very well for the long-time; Canada LNG is in the sweet spot. Happy to hold this for a long time.

oil / gas
DON'T BUY
Aritzia Inc.

Has never owned this, but there are concerns over same-store sales. Doesn't know when a turnaround will happen, but not this quarter. Could be several quarters. He owns Canadian Tire instead, within retail. He owns little Canadian retail; doesn't want exposure to the Canadian consumer.

specialty stores
WATCH

Have done a great job. The executive team is proving itself, are top managers. The PE is quite high, though lower than Shopify's. CSU is on his radar, despite that. They are consistent. Canadian tech rallied strongly last year, including CSU.

computer software / processing
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