Guy Lapierre, a Port Coquitlam, BC-based vice president at PI Financial, really likes Calgary-based Parkland Fuel Corp.’s six per cent bonds and two stocks—BCE for its dividend yield and Transcontinental for a niche play opportunity, especially with the fast-approaching holiday season.
As everyone and their mother could tell you, marijuana is now legal in Canada. Even so, Vancouver-area portfolio manager Guy Lapierre says he is far from ready to invest heavily in it. “I’m looking at ’em horrified,” says Mr. Lapierre, a vice-president at PI Financial, of marijuana stocks.
“It’s a straight valuation. I still see 50 per cent reductions in the retail price of marijuana,” he elaborates. “The entire system seems poised to prove the adage, ‘Buy the rumour, sell the news.’”
The portfolio manager argues that the retail market is finite and has already been roughly priced out, analyzed, and otherwise quantified by financial experts. In turn, investors have driven current cannabis stock prices so high up that they already account for potential recreational earnings. Accordingly, he says: “I can’t buy a position significantly at the price I want.”
Mr. Lapierre asserts that assigning a value to marijuana as a product is similar to doing so for beer or wine: users have subjective preferences, but often, consumer choice ultimately boils down to price point.
At the same time, he says: “There’s existing competition and that’s going to have to shake itself out.” Canadian producers are quickly ramping up operations and expanding their cultivation infrastructure. Since the federal government is unlikely to establish a ‘marijuana board’ akin to the former Canadian Wheat Board or Canadian Dairy Commission that would control prices, competition in retail cannabis will be fierce and push prices below sustainable levels. He urges caution and avoiding any marijuana stock purchase larger than a small, affordable, retail investor-type stake.
By contrast, Mr. Lapierre expresses greater interest in medical marijuana’s growth potential, calling attention to CBD-based treatments in particular, though he points out that his confidence in CBD (cannabidiol) is based on anecdotal, personal experience.
Since marijuana-related clinical research projects are now legal, novel medical uses for CBD will emerge, he predicts. However, he adds that he does not expect such treatments to receive approval from the US Food and Drug Administration or its Canadian counterparts in the next five years because the research studies are still in their infancy.
Mr. Lapierre’s interest is more income
Asked about interest rates, Mr. Lapierre says he is preparing clients for a one-percentage-point increase between this year and the end of 2019.
To that end, the portfolio manager says he has purchased short-to-medium-term fixed-income investments of two to five years’ duration, mostly corporate bonds, with the intent of holding them to maturity. “We’re using asset allocation to protect our principal . . . and as a result we’re underperforming (more aggressive portfolios), in the short-term.” Among his conservative growth clients, for example, he has shifted asset allocations toward a 50-50 split between equities and fixed-income assets, when the split is usually closer to 70-30 in favour of equities.
Given domestic opposition to pipelines and energy expansion, Mr. Lapierre says: “Whether or not you can get a project approved is more important than costing right now.
“That leads me to look at a company like Parkland Fuel Corp. (TSX—PKI)”, he continues, particularly its bonds. Parkland bonds were issued with a six per cent coupon and are yielding 4.9 per cent until 2022 (they are currently priced at a premium), reflecting their major expansion via the acquisition of Chevron’s Canadian assets, including a refinery, last year.
“They’re buying made-in-Canada priced oil. They’re selling world-price level gasoline.”
2 best stocks to buy now
As for stocks, Mr. Lapierre names BCE Inc. (TSX—BCE; NYSE—BCE) as one of his ‘best buys’, on the basis of its 5.9 per cent dividend yield, which, combined with preferred tax treatment, is attractive even relative to Parkland’s yield, fully taxed, he says.
Transcontinental Inc. (TSX—TCL.A) also ranks among the portfolio manager’s ‘best buys’. It’s a publishing, printing, and packaging company.
Transcontinental found a niche (bilingual packaging for Canadian consumers of foreign goods) and has worked to cheaply fill the need by purchasing pulp and paper-related assets and packaging suppliers.
When shipping containers unload those goods, they must be switched over to packages that follow Canadian requirements. According to Mr. Lapierre, an abundance of specialty items arriving for the holidays will come in Transcontinental containers.
In the month since Sept. 15 alone, the company’s shares dropped 17.1 per cent, resulting in an attractive buying opportunity, the portfolio manager says.
This is an edited version of an article that was originally published for subscribers in the November 2, 2018, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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